Kiribati Social and Economic Report 2008

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Pacific Studies Series Pacific Studies Series Kiribati Social and Economic Report 2008 After two impressively peaceful decades, there are signs of a dangerous degree of complacency in Kiribati’s view of its domestic and external affairs. Forms of cultural and political resistance to change have thus been encouraged, and these are handicapping the nation’s response to development risks. Eight leading sources of development risk confronting Kiribati are identified, and these require understanding and appropriate responses in the form of well-formulated national development strategies. Based on a thorough assessment of risks, priorities, and options by sector in the main report, 16 policy actions are recommended as keys to the full range of responses that need to be formulated to cope with development risk.

About the Asian Development Bank Social and Kiribati Economic Report 2008 ADB’s vision is an Asia and Pacific region free of poverty. Its mission is to help its developing member countries substantially reduce poverty and improve the quality of life of their people. Despite the region’s many successes, it remains home to two thirds of the world’s poor: 1.8 billion people who live on less than $2 a day, with 903 million struggling on less than $1.25 a day. ADB is committed to reducing poverty through inclusive economic growth, environmentally sustainable growth, and regional integration. Based in Manila, ADB is owned by 67 members, including 48 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance.

Kiribati Social and Economic Report 2008 MANAGING DEVELOPMENT RISK

Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines www.adb.org ISBN 978-971-561-777-2 Publication Stock No. BBK221008 Printed in the Philippines Pacific Studies Series

ISBN 978-971-561-777-2 Publication Stock No. BBK221008

Cataloging-In-Publication Data

Asian Development Bank. Kiribati social and economic report 2008: managing development risk Mandaluyong City, Phil.: Asian Development Bank, 2008. 1. Development. 2. Risk management. 3. Kiribati. I. Asian Development Bank.

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Acronyms vi

Glossary of Kiribati Terms viii

Foreword ix

Executive Summary 1

I. Growing Risk in the Development Process 13 and National Response Overview of Kiribati 13 Leading Sources of Development Risk 20 Strategic Priorities and Policies for Managing Development Risk 26

II. Social Response to Development Risk 29 Population and Migration 29 National and Local Governance 36 Environment and Climate Change 45 Education and Training 54 Wages, Employment, and Emigration 68 Health and Welfare 79

III. Economic Response to Risk 95 Promoting and Financing the Private Sector 95 Marine Resources 105 Land, Subsistence, and Commercial Agriculture 116 General Economic Activity 123 Utilities, Transport, and Infrastructure 130 Developing the Line and Phoenix Islands 137

IV. Development Risk in the Public Sector 151 Need to Improve Public Enterprises 152 Performance of the Public Service 165 iv Kiribati Social and Economic Report 2008

Strengthening Fiscal Management 173 Government Machinery for Managing Development Risk 186 Making Aid More Eﬀ ective 188

References 197

Appendixes 1. Data Tables 201 2. Persons Consulted 233

Boxes Box 1: Th e Political and Social Environment for Economic Reform 41 Box 2: Business and Industrial Estates or Parks 99 Box 3: A Case Study: Public Enterprises in the Telecommunications Sector 163 Box 4: Planning and Monitoring System 170 Box 5: Strengthening Governance of the Revenue Equalisation Reserve Fund 181

Tables Table 1: Number of Students Enrolled in Kiribati Schools by Level, 2003–2006 57 Table 2: Gender Balance in Kiribati School Enrollment by Level, 2006 57 Table 3: Summary of AusAID and NZAID Scholarships Awarded to Kiribati Students, 2000–2007 65 Table 4: Estimated Number of Formal Employment Openings, Training Institution Opportunities, and Graduates Employed Annually in Kiribati, 2007 73 Table 5: Basic Health Indicators for Kiribati 81 Table 6: Indicators Related to Pregnancy and Birth in Kiribati 85 Table 7: Incidence of Selected Crimes in Kiribati, 2000–2006 91 Table 8: Number of Licenses Issued for Selected Business Categories in South Tarawa, 2006–2007 100 Table 9: Licensed Foreign Fishing Vessels in the Kiribati Exclusive Economic Zones: Annual Average, 2004–2006 108 Table 10: Average Annual Household Income in Kiribati by Island Group 119 Contents v

Table 11: Public Enterprises in Kiribati 154 Table 12: Kiribati Central Government Operations, 2002–2007 175 Table 13: Kiribati Development Fund Budget by Donor, 2005–2007 190

Figures Figure 1: Kiribati Nominal Gross Domestic Product, Gross National Income, and Net Factor Income, 1997–2006 17 Figure 2: Kiribati Nominal Gross Domestic Product and Gross National Income Per Capita, 1997–2006 18 Figure 3: Kiribati Balance of Payments Current Account, 1997–2006 19 Figure 4: Kiribati Population Distribution by Age and Sex, 2005 32 Figure 5: Government of Kiribati Structure for Overseeing Climate Change Adaptation Policy 51 Figure 6: Percentage of Budget Allocations and Students Attending Church and Government Senior Secondary Schools in Kiribati, 2006 55 Figure 7: Proportion of Qualiﬁ ed Teachers in Kiribati Schools by Level, 2003–2006 58 Figure 8: Proportion of Certiﬁ ed Teachers in Kiribati Schools by Level, 2003–2006 59 Figure 9: Persons Reporting Paid Employment in Kiribati by Census, 1985–2005 69 Figure 10: Educational Levels of the Kiribati Workforce, 2005 71 Figure 11: Changes in Access to Safe Water and Sanitation, and Infant Mortality in Kiribati 80 Figure 12: Suicides Reported in Kiribati, 2000–2006 86 Figure 13: Reported Cases of Underage Drinking and Drunkenness in Kiribati 88 Figure 14: Annual Household Expenditure by Expenditure Group in Kiribati 120 Figure 15: Number of Norwegian Cruise Line Passengers Visiting Tabuaeran Annually, 2002–2005 148 Figure 16: Kiribati Central Government Operations, 1994–2007 176 Acronyms

ADB – Asian Development Bank APTC – Australian Pacifi c Technical College AusAID – Australian Agency for International Development BOK – Bank of Kiribati CCA – Climate Change Adaptation CPPL – Central Pacifi c Products Limited DBK – Development Bank of Kiribati EDF – European Development Fund EEZ – exclusive economic zone EU – European Union FFA – Forum Fisheries Agency FHA – Family Health Association FTC – Fisheries Training Centre GDP – gross domestic product GEF – Global Environment Facility GNI – gross national income ILO – International Labour Organization JSS – junior secondary school KAP – Kiribati Adaptation Programme KCCS – Kiribati Copra Cooperative Society KEMIS – Kiribati Educational Management Information System KHC – Kiribati Housing Corporation KIDP – Kiritimati Island Development Plan KIT – Kiribati Institute of Technology KNAO – Kiribati National Audit Offi ce KOIL – Kiribati Oil Company Limited KPA – Kiribati Ports Authority KPF – Kiribati Provident Fund KSSL – Kiribati Shipping Services Limited KTC – Kiribati Teachers’ College Acronyms vii

MCIC – Ministry of Commerce, Industry and Cooperatives MELAD – Ministry of Environment, Land and Agricultural Development MEYS – Ministry of Education, Youth and Sports MFED – Ministry of Finance and Economic Development MFMRD – Ministry of Fisheries and Marine Resources Development MHMS – Ministry of Health and Medical Services MISA – Ministry of Internal and Social Aff airs MLHRD – Ministry of Labour and Human Resources Development MOP – ministry operational plan MTC – Maritime Training Centre NAPA – National Adaptation Programme of Action NCL – Norwegian Cruise Line NEPO – National Economic Planning Offi ce NGO – nongovernment organization NSO – National Statistics Offi ce NZAID – New Zealand’s International Aid & Development Agency PIER – Pacifi c Islands Economic Report PIPA – Phoenix Islands Protected Area PSO – Public Service Offi ce PUB – Public Utilities Board RERF – Revenue Equalisation Reserve Fund SAPHE – Sanitation, Public Health, and Environment Improvement Project SAS – subregional audit support (program) SOPAC – Pacifi c Islands Applied Geoscience Commission SPC – Secretariat of the Pacifi c Community SPMS – South Pacifi c Marine Services SSS – senior secondary school STI – sexually transmitted infection UN – United Nations UNDP – United Nations Development Programme UNICEF – United Nations Children’s Fund US – United States USP – University of the South Pacifi c WHO – World Health Organization Glossary of Kiribati Terms

Beretitenti – President of the Republic of Kiribati Botaki ni Unimwane – association of unimwane on each island bubuti – a request from a relative or friend that normally cannot be refused without damaging the relationship I-Kiribati – Kiribati citizen maneaba – a meeting as well as a meeting house where unimwane discuss and decide matters of community concern in full view of the community Maneaba ni Maungatabu – Parliament Tibi Kauntira – chief councilor toamau – a balance of age and gender in household membership that enables a division of labor necessary to meet the everyday needs of the household unimwane – male elders and traditional leaders

Note

In this report, “$” refers to Australian dollars unless otherwise speciﬁ ed. Foreword

anaging Development Risk encourages the small island nation of Kiribati to embark on a sustainable development path. Th e report illustrates how various development risks contribute to the fragility of a resource-poor and import-dependent economy, andM how the Government and people of Kiribati can manage these development challenges. Since becoming independent in 1979, Kiribati has built a reputation for political stability and fi scal prudence while confi dently pursuing its own path in regional and international relations. Its assurance in external aff airs has refl ected a strong sense of national identity and a distributive approach to domestic wealth and well-being. However, after two impressively peaceful decades, the social and economic landscapes have changed. Economic growth has been dismal. Relative poverty and deprivation are emerging into open view. Th ere are signs of a dangerous degree of complacency in Kiribati’s view of its domestic and external aff airs. Forms of cultural and political resistance to change have been encouraged, and these are handicapping the nation’s response to development risks. Social and economic conditions are aff ected by continued population growth, monetization of economic activity and personal behavior, increased engagement of all kinds with the outside world, and the elimination of physical distance as a barrier to communication. Th e need to adapt to the eff ects of climate change on sea levels and weather patterns is widely acknowledged, but is not yet factored into public and private investment decisions. Managing Development Risk outlines eight leading threats as well as other development risks facing Kiribati, in the context of a comprehensive assessment of social and economic conditions in the country. Th e report provides 16 strategic priorities and options for policies for managing development risks, including a scrutiny of the scope of government responsibility for identifying and evaluating unfolding risks, consulting with citizens about them, guiding citizens’ actions, and taking direct action. A number of these policy decisions and associated actions are seen as keys to unlocking the potential of many other activities to x Kiribati Social and Economic Report 2008 which the Government is preparing to commit itself and the country in the years ahead. Many actions coincide with strategies and activities that are already part of the Government’s program for the next 4 years. Most of them involve strategic decisions that may involve some political and fi nancial risk, but they are essential to counter the greater risk of continued stagnation if not decline. Th e objective of the report is to help the Government and I-Kiribati civil society to reach critical decisions on policies aimed at attaining more equitable and sustainable growth and development. Th is report was funded by a joint regional project of the Asian Development Bank and Australian Agency for International Development. Th e report series aims to assist the Island Governments in policy formulation by analyzing socioeconomic situations, key issues, and development prospects. Th e report is an independent review by consultants. Guidance and substantive contributions were made by Anqian Huang, Sirpa Jarvenpaa, and Stephen Pollard. Th e report has also benefi ted from a harmonized process that involved analytical reviews by development partners of Kiribati and valuable comments of development partners’ staff .

Sultan Hafeez Rahman Director General Paciﬁ c Department Asian Development Bank Executive Summary

Risk in the Development Process

Th e Nation. Kiribati is small and remote, and spread over a vast area of the Pacifi c Ocean. Twenty atolls and one raised island are inhabited with a total land area of 726 square kilometers (km2). Together with another 12 uninhabited atolls, the islands are surrounded by exclusive economic zones encompassing 3.5 million km2 of ocean stretching 5,000 kilometers (km) from west to east and 2,000 km from north to south. Since becoming independent in 1979, Kiribati has built a reputation for political stability and fi scal prudence while confi dently pursuing its own path in regional and international relations. Its assurance in external aff airs has refl ected a strong sense of national identity and a distributive approach to domestic wealth and well-being. Government fi nances have been underpinned by a reserve fund four times larger than gross national income, built up by pre-independence taxation of phosphate mining and successful investment overseas. Kiribati also has attracted substantial external aid from bilateral and multilateral sources. Nonetheless, economic activity is constrained by isolation, sparse resources, and a fragile environment.

Th e People. Th e people of Kiribati are by nature hardy, egalitarian, and conservative. Land is scarce in Kiribati and land-based resources are sparse. Language and culture reﬂ ect a strong aﬃ nity to the sea. Th e population of Kiribati was 92,533 at the 2005 census, just over 8,000 more than the 2000 census total. Th is represented an average yearly increase of 1.8%—currently equivalent to about 1,750 people. Th e two urban centers accounted for about 50% of the total, with South Tarawa comprising 44% and Kiritimati almost 6%. Th e previously strong migration to South Tarawa has slowed somewhat, but population in Kiritimati has continued to grow rapidly. Th e population density in South Tarawa, at 2,558/km2 in the 2005 census, was about 20 times the national average of 127. 2 Kiribati Social and Economic Report 2008

Th e population is young, with a median age of 21, and remarkably mobile. Movement has been chieﬂ y around and between the Gilberts Group and the Line Islands. Several hundred I-Kiribati emigrated in 2000–2005, mostly to New Zealand. Emigration for work and permanent residence is expected to grow.

Th e Economy. Kiribati consumes far more than it produces and imports far more than it exports, paying for the diff erence with foreign income. Th e public sector dominates the economy, accounting for more than half of estimated gross domestic product (GDP). Th e general level of demand is largely determined by the government’s recurrent budget. Half of that budget is funded by access license fees paid by foreign fi shing vessels to catch tuna in Kiribati’s exclusive economic zones and by earnings of Kiribati’s reserve fund invested in overseas fi nancial markets. Total demand draws in close to $100 million of imports yearly, while yearly exports of goods are valued at around $5 million. Th e balance of payments current account is sustained by factor income from abroad (i.e., tuna vessel fi shing licenses, seafarers’ remittances, and investment earnings) and grants received by government, churches, and other nongovernment organizations. Gross national income—which includes factor income from abroad— averaged $159 million, or $1,758 per capita, in 2002–2006. Th is is close to double the value of domestic output of goods and services (i.e., GDP), which averaged $947 per capita in the same period. Excluding foreign aid for development projects and private capital infl ows (the latter are very small), almost 50 cents of every dollar spent in Kiribati originates in factor income and transfers from abroad.

Causes for Concern. After two impressively peaceful decades, there are signs of a dangerous degree of complacency in Kiribati’s view of its domestic and external aff airs. Forms of cultural and political resistance to change have thus been encouraged, and these are handicapping the nation’s response to development risks. Social and economic conditions are changing, aff ected by continued population growth, monetization of economic activity and personal behavior, increased engagement of all kinds with the outside world, and the elimination of physical distance as a barrier to communication. Th e need to adapt to the eff ects of climate change on sea levels and weather patterns is widely acknowledged, but is not yet factored into public and private investment decisions. People and ideas are on the move in Kiribati, traditional values and responsibilities are breaking down, and the inbuilt regulators of the Kiribati culture are under great stress. Politics is becoming more organized yet more Executive Summary 3

divisive. Th e domestic economy is failing to provide livelihoods that can satisfy growing needs and aspirations, relative poverty and deprivation is emerging into open view, and emigration is being widely discussed as a reasonable path for individuals and families to take to a better life.

Leading Sources of Development Risk Deﬁ ne National Strategic Priorities. Eight leading sources of development risk confronting Kiribati are identiﬁ ed, and these require understanding and appropriate responses in the form of well- formulated national development strategies:

(i) climate change, (ii) international prices of the Australian dollar and petroleum-based fuel, (iii) the continued population increase, (iv) the limited resource base and sources of income available to the economy, (v) unplanned and unmanaged urban growth, (vi) underperformance by government departments and public enterprises, (vii) passive management of public ﬁ nance, and (viii) the emergence of divisive political tendencies.

Th e ﬁ rst two listed are outside the control of Kiribati but demand well thought-out strategic responses. Th e impacts and outcomes of points (iii)–(viii) are highly dependent on the quality of Kiribati strategies for economic and social management.

Recommendations for Priority Policy Actions. Based on a thorough assessment of risks, priorities, and options by sector in the main report, 16 policy actions are recommended as keys to the full range of responses that need to be formulated to cope with development risk. Th e priority recommendations cover

• population policy and poverty; • improvement of health services, educational standards, and technical training, particularly further expansion and upgrading of the Maritime Training Centre (MTC); • progressive renewal and transformation of South Tarawa’s urban areas; • constitutional reforms to enhance the accountability and performance of national and local governments; • climate change; 4 Kiribati Social and Economic Report 2008

• Kiribati support for management of Pacifi c tuna stocks; • devolution of governance for development of Kiritimati, and promotion of the Phoenix Islands as a globally signifi cant marine protected area; • closure or sale of nonstrategic public enterprises, and enforcement of governance standards for strategic public enterprises; • no subsidization of fuel prices, but promotion of alternative energy sources; and • strengthened public fi nancial management and creation of a statutory structure to safeguard the national reserve fund.

Th ese policy recommendations are discussed brieﬂ y in the following sections as part of a summary review of developments in key sectors encompassed by social, economic, and public sector response to development risk.

Social Response to Development Risk

Population. Continued growth of population is straining Kiribati’s capacity to provide for its people. Fertility rates have been falling but are still high by regional standards. Th e total population is projected to reach 130,000 by 2025, with 80,000 in the working-age group compared with 53,000 in 2005. Evidence is clear that programs aimed at slowing population growth do work in Kiribati. No single, more eﬀ ective way of improving future income and welfare per capita is available to Kiribati than a well-planned, sustained campaign to reduce the future size of the population.

Employment. Formal and informal wage employment expanded over 40% in 5 years according to the 2005 census. Growth this high, however, is not reﬂ ected in other economic data and may in part be the result of changes in census questions. Each year just over 2,000 young people leave school and look for jobs. Opportunities for formal employment await only about a quarter of school leavers in the public sector, the domestic private sector, and in seafaring jobs abroad; the rest must be absorbed by the informal economy. School curriculum at present does not prepare school leavers for productive and satisfying livelihoods in the informal economy. Th is deﬁ ciency has not prevented women from being well represented in formal and nonformal employment and in small businesses.

Emigration. Th e growing importance of emigration for work and permanent settlement is well recognized. Collaboration to this end with host governments is already under way. However, Kiribati must upgrade the caliber of emigrant Executive Summary 5

workers the country is ﬁ elding in terms of technical and English language skills and physical health.

Health. Th e capacity of the government health system is being stretched by population growth and handicapped by budgetary constraints. A fourth hospital is being built to serve the southern Gilberts, but capital and operating costs are expected to be high relative to the likely benefi ts to public health. Twenty rural clinics complete the system. Th ere are no private clinics or pharmacies, although government doctors recently were allowed to attend to fee-paying outpatients at the national hospital after offi cial hours. Health indicators for Kiribati are mixed. Infant mortality has been falling, probably linked to increased attendance at births by trained personnel and improvements in sanitation and water supplies. However, infant and child mortality is still high by regional standards. Life expectancy has been falling, attributed to the spread of lifestyle diseases among adults. Th e incidence of infectious diseases is also on the rise. Th e increase in hepatitis B cases is of particular concern, not only as a growing health threat, but because it disqualifi es candidates for overseas education and jobs. Th e incidence of HIV/AIDS and treatable, sexually transmitted infections is reportedly rising. Mental illness apparently is increasing, but is accorded few resources in the health budget. Countermeasures against communicable and lifestyle diseases need to be strengthened as does the outreach of public health services. A management information system for health, following the example of the Kiribati Educational Management Information System, would greatly assist the Ministry of Health and Medical Services.

Education. Th e condition of the education system is cause for much concern. Th e recently established Kiribati Educational Management Information System has found school buildings, furniture, equipment, and infrastructure generally well below standards set by the Government in number, size, and quality. Just under 28,000 students were enrolled in 130 schools with 1,318 teachers in 2006. Total enrollment rose by less than 2% during 2003–2006—less than half the rate of population growth. Junior secondary school enrollment, the crucial pre-training stage, fell 9%, mainly in the urban schools. Th e net enrollment ratio at primary level was 96%; junior secondary, 79%; and senior secondary, 34%. Th ere were slightly more boys than girls in primary schools, but girls signiﬁ cantly outnumbered boys at both secondary levels. Th e school curriculum is inappropriate and does not prepare school leavers for productive and satisfying livelihoods. A comprehensive overhaul of the school curriculum is required to equip young people with the skills and versatility needed 6 Kiribati Social and Economic Report 2008 to participate in further education and training, as well as in formal and informal economic activities in urban and rural settings.

Training. Th e teachers’ college, the technical institute, the maritime training center, and other training institutions report students with numeracy and English language skills inadequate to enter the institutions, let alone graduate. Th e Kiribati Institute of Technology has been expanded and reequipped, and the regional University of the South Paciﬁ c is about to substantially upgrade its Kiribati campus. MTC is also undergoing substantial expansion. Th ere is scope for further growth of MTC provided Kiribati seafarers improve their recently tarnished image and compete successfully in this increasingly competitive market. All training institutions need a better standard of school leavers to make use of improved facilities.

Local and National Governance. Vital elements of local and national governance need attention. Th e two urban councils in South Tarawa are notoriously ineﬀ ective, both as service providers and as instruments of democratic government at community level. Urban councils as well as island councils are receiving donor support aimed at strengthening their capabilities. New Zealand has taken up the challenge of transforming the two urban councils into eﬀ ective institutions, and a multiyear program is being designed. A long-term program to build the capacity of island councils is supported by the United Nations Development Programme. Aspects of the national constitution are under stress. Th e Constitution worked well while there was broad consensus of support for national leadership, and when members of Parliament clearly answered to their constituencies rather than to political parties. Parliament has become more sharply divided, and concern is commonly expressed about the inability of Parliament to call the executive to account and insist on debate of government policy. Public concern has renewed calls for a fresh, consultative look at aspects of the Constitution in which points of strain can be publicly examined and amendments canvassed. Th e acute under- representation of women in Parliament is a matter of concern.

Climate Change. Th e need to adapt to the adverse impacts of climate change has been acknowledged by Kiribati’s development of the National Adaptation Programme of Action (NAPA) and the Kiribati Adaptation Programme (KAP). NAPA is supported by the United Nations Development Programme and KAP by the World Bank. Both involve funding from the Global Environment Facility and cover substantially the same policy areas. Th e two programs must be coordinated closely or, preferably, consolidated. Smooth interaction is needed with the private sector and the general public as planning and preparations Executive Summary 7 are accelerated for dealing with the impacts of climate change. Th is will require guidance and oversight from the Oﬃ ce of the President. While widely acknowledged, the eﬀ ects of climate change are not yet factored into public and private investment decisions.

Economic Response to Risk

Th e Private Sector. Th e private sector is more active in Kiribati than is commonly acknowledged. Urban areas are particularly busy with privately operated public transport, shops, eating and entertainment establishments, roadside markets, and small-scale construction and service businesses. At Kiritimati, the sport fi shery and the aquarium fi sh export trade are entirely in private hands. Foreign investment in wholesale importing has brought competition and lower prices, and may help to build support for more private investment. Th e inadequate availability of secure land tenure is cited by government offi cials and businesspersons alike as a key obstacle to private fi xed investment. Within government, there is less opposition to private enterprise than previously. Th e Ministry of Commerce, Industry and Cooperatives functions of promoting and regulating private investment are being separated and strengthened. One aim of the ministry is to increase small-scale manufacturing of products where distance provides protection against industrialized competitors—e.g., small boats, trailers, and handcarts. Serviced premises for lease for offi ces, workshops, and factories would improve such prospects. A feasibility study is recommended of development in Tarawa and Kiritimati of industrial and business estates and the leasing of serviced enterprise sites to private investors. Th e domestic fi nance sector is dominated by the Bank of Kiribati (BOK), a locally incorporated subsidiary of the ANZ Banking Corporation, with a 25% shareholding by the Government of Kiribati. Th e bank is now looking to rebuild its loan portfolio with a broader mix of lending after it was drastically altered in mid-2007 when the Government repaid an accumulated overdraft of $30 million. Th e Development Bank of Kiribati has a portfolio of 3,000 loans totaling just under $10 million, and is also looking to broaden its portfolio. Th e Kiribati Provident Fund is the main savings instrument in the Kiribati economy, holding close to $100 million overseas and $10 million with BOK. Village banks in over 150 villages form a microfi nance system with a total asset value of about $2 million.

Utility Services. Utility services in Kiribati are a critical concern of private investors, but their provision in Kiribati by public enterprises is expensive 8 Kiribati Social and Economic Report 2008 and often uneven. Th e diffi culties are related to the wider problems of public enterprise performance, tariff s kept low because of political considerations, the low priority given to maintenance, and the negative attitudes of households in urban areas toward public utilities. Water services are available in urban South Tarawa and in urban areas of Kiritimati. An Asian Development Bank project supported improvements in parts of the South Tarawa system, but its sustainability is in question and depends on timely maintenance and successful community education to reduce abuse of the system. Electricity services in South Tarawa also were recently upgraded with donor-funded investment, but the system is again approaching maximum sustainable load status and power interruptions are becoming frequent. Solar power is provided in the outer islands with capital fi nancing support from the European Union. While technically sound, the system is fi nancially handicapped by political reluctance to approve tariff s that cover costs. Fixed and mobile phone services and internet service are provided in Tarawa and Kiritimati. A 5-year program is under way to extend services to the outer islands—hopefully with donor support—using satellite links to replace high-frequency radios.

Transport. Domestic air services are provided by Air Kiribati, which is owned and heavily supported fi nancially by the Government. Th e relationship needs to be made transparent and accountable through formal agreements specifying what the Government wants the airline to do. Air Kiribati should be allowed to charge commercial fares on economic routes, and formal agreements should spell out precisely how the Government will support the airline’s operation of noneconomic services. International services are provided by Our Airline to Bonriki International Airport, and to Bonriki and Kiritimati by Air Pacifi c. Domestic shipping services are provided by the public enterprise Kiribati Shipping Services Limited, the Kiribati Protestant Church, and several private shipowners. Freight rates are informally standardized, and a freight subsidy scheme aims to equalize the cost of imported goods in Tarawa and the outer islands (but not Kiritimati). International shipping services consist of a 35-day service by Swire Group from Australia and the Fiji Islands, supplemented now by a small Kiribati Shipping Services container vessel to Suva, Fiji Islands. Th ese services generally are adequate, but some in Tarawa think that freight rates would come down and services improve with more competition. Th e import and storage of fuel at Betio suff ers from lack of tank capacity, necessitating more frequent calls of smaller vessels at higher freight costs, on top of rising ex-refi nery fuel prices. Investment in increased storage capacity requires feasibility study and procurement of suitable fi nancing. Executive Summary 9

Marine Resources. Sustainable management of the ocean tuna fi shery is immensely important to Kiribati, but the country’s commitment to collective management arrangements has sometimes wavered. Th e Government’s commitment to regional solidarity, organized through the Forum Fisheries Agency and Pacifi c countries’ membership of the Tuna Commission, is essential if tuna stocks are to be conserved for sustainable harvest. Current levels of fi shing eff ort yield Kiribati $25 million–$30 million annually in foreign fi shing vessel license fees, depending on variable climatic conditions that aff ect ocean temperatures and catches. Th e domestic food fi shery supplies rural and urban areas with an average of 45–50 kilograms of fresh and frozen reef and ocean fi sh per household per month. Aquaculture has held out hopes for rural production and export earnings that have yet to be realized. Seaweed production is subsidized (paralleling the copra price subsidy) with the aim of enhancing outer island incomes. Black pearl culture, integrated aquaculture-livestock operations (assisted by Japan), and culture of milkfi sh and prawns (supported by Taipei,China) have yet to demonstrate commercial feasibility. Th e aquarium fi sh (pet fi sh) trade based on Kiritimati is thriving and exporting product by air to Honolulu amid growing concern about overexploitation of the favorite species. Th e bonefi sh sport fi shery, which is the basis of the tourist industry on Kiritimati, is threatened by the netting of bonefi sh for food by Kiritimati residents. A public education and awareness program on Kiritimati aims to correct this.

Land, Subsistence, and Agriculture. Th e scarcity of land sharpens the impact of issues relating to it, while population growth, destruction of records by fi re, and administrative failings have undermined systems that were once socially and technically adequate. An overall program of land reform or consolidation is lacking, and the backlog is long of disputes awaiting settlement and records needing reconstitution. Subsistence production—i.e., food, housing, and other goods and services used by the household that produced them—is losing ground to purchased goods and services. However, it is still signifi cant in Kiribati according to a 2005 survey, accounting for just over 20% of income nationally, 22%–35% of income in the outer islands, and 10% of South Tarawa income. Households that have access and the physical ability to harvest the produce of the land and the sea have a valuable cushion against hunger and other forms of hardship denied the landless and urban poor. Agriculture in Kiribati is typifi ed by the coconut, but about half the estimated 11 million trees in the country is considered senile and unproductive. Copra production is heavily subsidized, helping to keep people in the outer islands. 10 Kiribati Social and Economic Report 2008

Bananas brought from Butaritari at subsidized freight rates enliven Tarawa diets. Th e Ministry of Environment, Land and Agricultural Development is planning a 5-year, $5 million “green revolution” to revitalize production of traditional food crops suited to the atoll environment. Before scarce resources are committed, this proposal needs careful appraisal in the context of population dynamics and climate change.

Developing the Line and Phoenix Islands. Putting its distant eastern and southern islands to sustainable developmental use is a huge challenge, but one that Kiribati cannot avoid. Th ese islands include several areas important for global biodiversity of marine and bird life. In the Line Islands, development attention is focused on Kiritimati and Tabuaeran. Detailed planning for the development of Kiritimati has been drafted with support from the Asian Development Bank. Th e aim is a managed and sustainable 10-year growth of the population to around 15,000 in the northern quarter of the island. Th is will require substantial delegation of governance from Tarawa, funds and capacity to develop and maintain infrastructure, and the growth of a private sector–driven economy based on export of marine products, sport fi shing, and ecotourism. Th e main risk attached to this plan is a failure of the Government to fully grasp the realities on Kiritimati. Without improvement on performance to date, the pressure of people fl owing into the island will overwhelm its important marine and bird life and perpetuate slum settlements before there is a strong enough administrative framework to manage and protect that wildlife. Already, bonefi sh stocks in lagoons that have famously attracted sport fi shers from around the world are being diminished by residents netting them for food. Cruise ship tourism has transformed life on Tabuaeran. Th e development strategy for the island envisages continuation of the present pattern of visits, with progressively more of the goods and services consumed by visitors while ashore provided by island residents. Th e risks are that the plans of the cruise ship line may change for reasons outside of the control of Kiribati, and that exposure to tourists may diminish the attractions of Tabuaeran that have made it a popular port of call. Th e responses of the Government should focus on maintaining good communication with the cruise ship line for early warning of any strategic changes, careful management of the degree and nature of contact between tourists and residents, and progressive “localization” of the shoreside activities without prejudicing visitor safety. Th e Phoenix Islands recently have come to prominence with the establishment by Kiribati of the Phoenix Islands Protected Area, the third largest such area in the world. Th e Government of Kiribati and its international partners are currently discussing a management scheme and fi nancial arrangements for Executive Summary 11 policing and maintaining the enormous area and devising ways of earning revenue from it without detracting from its value for science and ecotourism.

Public Sector Response to Risk

Public Enterprises. Th e 25 public enterprises wholly owned by the Government operate in most sectors of the economy. Th ey are regarded by most local and foreign observers as ineffi cient users of the fi nancial and human resources devoted to them. Th e governance regime for public enterprises does not provide incentives for them to become more effi cient. Apart from a more restrictive attitude toward the open provision of subsidies, proposals aimed at addressing this and other weaknesses of public enterprises in the National Development Strategies 2004–2007 were generally not taken up. However, signs have appeared recently of a greater readiness at the higher levels of government to tackle the problems. A system for supervision of public enterprises is proposed in this report that has fi ve principal elements:

(i) adoption of a code of governance for public enterprises, either by legislation or as a “permanent policy” statement; (ii) negotiation of service agreements governing the relationship of each public enterprise to one or more government ministries; (iii) introduction of elements of performance auditing into the annual audit process; (iv) strengthened central agency arrangements for monitoring performance of public enterprises, which is presently done in name only by the Ministry of Finance and Economic Development (MFED); and (v) annual reporting to Parliament and the general public by individual public enterprises and by the central monitoring agency.

Successful and eﬃ cient operation of public enterprises requires a high degree of clarity about their purpose and their relationship with the Government, the public, and the private sector. Without such clarity, distortions and complexities arise that confuse policy making and add to the costs eventually borne by the public. Such clarity also will facilitate decisions about sale or closure of some public enterprises and retention of others under stronger governance rules.

Fiscal Management. Signs of a weakening of fi scal management have emerged in recent years, resulting in unsustainable budget defi cits. Planning, or at least 12 Kiribati Social and Economic Report 2008 processing, development projects appears to have taken precedence over managing the budget in a sustainable framework. Accounting and fi nancial operations have become disconnected and government accounts have fallen into arrears. One result has been unexpected revelations about government debt with BOK and drawdowns on the Revenue Equalisation Reserve Fund which attracted unusually open and critical public attention during 2007—with some justifi cation. Recommendations for strengthening fi scal management focus on:

(i) clearly separating budget management functions from economic and development planning functions in MFED; (ii) placing the annual budget ﬁ rmly in an articulated multiyear ﬁ scal framework that is published annually with explanations alongside the budget itself; (iii) strengthening the security and governance of the Revenue Equalisation Reserve Fund through legislation that will safeguard a core (national reserve) fund, and allow access by annual appropriation to a working (government reserve) fund; and (iv) getting the government accounts out of arrears and the accounting cadre refreshed, focused, and working properly.

Managing Development. Improved management of development risk will require stronger performance of development planning functions. Th is means their separation from government budget design and management functions as part of the overall strengthening of public ﬁ nancial management. Th is report endorses the proposed establishment of a unit in the Oﬃ ce of the President to be responsible for overall strategic risk management and such whole-of-government projects as population policy, adaptation to climate change, and maintenance of a national disaster response capability.

Aid Management. Government management of aid needs strengthening. All project and program proposals should be subjected to systematic appraisal by MFED before they are submitted to donors for consideration. Armed with a list of well thought-out proposals that incorporates priorities and government commitment of the necessary domestic resources, the Government will be better able to make eﬀ ective use of aid. Growing Risk in the Development Process and National Response

Overview of Kiribati

The Nation

iribati is small and remote, and spread over a vast area of the Paciﬁ c Ocean. Twenty atolls and one raised island are inhabited with a total land area of 726 square kilometers (km2). Together with another 12 uninhabited atolls, the islands are surrounded by exclusive economic Kzones (EEZs) encompassing 3.5 million km2 of ocean stretching 5,000 kilometers (km) from west to east and 2,000 km from north to south. Isolation, sparse resources, and a fragile environment constrain economic activity. Before the colonial period and a sharp drop in population in the late 19th century caused by imported disease, the 16 atolls forming the main group of the Gilbert Islands were estimated1 to have supported a population of around 50,000 in a fragile but managed balance with the natural environment. Traditional systems of governance, population control, and resource management evolved to recognize and respond to threats to that balance through alliances, internal migrations, periodic warfare within and between islands, and ways of resolving or living with disputes. Th e outcome was the social and political basis of a nation–state with a single language and a common culture. Th ere were island- level variations of language and culture, but also a well-recognized unitary core.

1 According to visiting whalers, trading ships, and naval vessels. Th e Phoenix and Line islands had no permanent inhabitants, but like the Gilbert Group they were visited during the 19th century by European or United States–based ships, and in the case of the Phoenix and Southern Line islands, by phosphate diggers from South America. 14 Kiribati Social and Economic Report 2008

In the outer islands and in most urban communities, important elements of the traditional maneaba (community meeting or meeting place) governance system coexist today with modern government institutions, and the traditional system often is favored for resolving issues. Since becoming independent in 1980, Kiribati has earned wide respect for combining constitutional and political stability with vibrant democratic politics and fi scal prudence. Government fi nances have been underpinned by a national reserve fund four times larger than gross national income (GNI), built up by pre- independence taxation of phosphate mining and successful investment overseas. Careful planning and management by successive governments over many years fostered a relatively egalitarian and mutually supportive society. A distributive approach to domestic wealth and well-being and a strong sense of national identity have contributed to an assurance in external aff airs and confi dent pursuit by Kiribati of its own path in regional and international relations. With conservation and prudent use of its national reserve fund, Kiribati has thus successfully limited national dependence on external aid while at the same time attracting substantial external aid from bilateral and multilateral sources.

The People

Th e people of Kiribati are by nature hardy, egalitarian, and conservative. Land is scarce in Kiribati, and land-based resources are sparse. Language and culture refl ect a strong affi nity with the sea. Families and communities in Kiribati have always had to manage risks that threatened their survival in the isolated and physically limited environment of their mid-Pacifi c atoll chain. Th e population of Kiribati was 92,533 at the 2005 census (Kiribati National Statistics Offi ce [Kiribati NSO] 2007), an increase of 9.5% or slightly more than 8,000 persons over the 2000 census. Th is represents an annual growth rate of 1.8%, a current annual population increment of 1,700–1,750, and a population at the end of 2008 of about 98,000. Th e population today is three times as large as it was 60 years ago, when many persons who are now grandparents were children. On the basis of growth rates derived from the 2005 census, the population is projected to pass 130,000 around 2025. About 43.6% of the population, or 40,311 of those enumerated in 2005, resided on South Tarawa. Th e outer islands of the Gilbert Group, which includes North Tarawa, accounted for 46.8% (43,372 people), and the Line and Phoenix islands accounted for 9.6% (8,850 people). Of the latter, 5,115 (5.5% of the population) were on Kiritimati. Between 2000 and 2005, the population of South Tarawa increased by 3,594 and that of Kiritimati by 1,684. Growing Risk in the Development Process and National Response 15

Th e 2005 census found 45,612 males and 46,921 females—an excess of about 1,300 females, which roughly equals the number of male I-Kiribati employed at any one time on overseas merchant ships and ﬁ shing vessels. Th e population proﬁ le is young, with 58% aged 24 and younger and 37% below 15 years old. Th e median age of the population (same number above as below) was 21 years old. Th e average life expectancy was 61 years, with females averaging 63 years and males 59 years. Th e total fertility rate2 declined to around 3.5 in 2005 from about 4.5 during the 1990s. Despite the downward trend, the fertility rate is still high given the economic, social, and environmental prospects facing Kiribati. Persons of working-age (i.e., aged 15 and over3) made up 58% of the population, or about 54,000 persons, in 2005. Just over 13,000 of these— about one in four of the potential workforce, or 14% of the population—were enumerated in wage-earning occupations.4 Two thirds of them were male, and over 90% were employees. Th e census enumerated 246 employers and 734 self- employed persons. Th e 2005 census counted 13,999 households with a national average of 6.3 persons per household. Th e number of households had risen by nearly 1,400 between 2000 and 2005, with more than half of them added in South Tawara. Households in South Tarawa tended to be larger than those in rural areas, averaging 7.5 persons. Th ree persons in every 10 lived in households of 10 persons or more, most of them in South Tarawa. Th e overall population density in Kiribati was 127/km2. In South Tarawa it was 2,558/km2, with North Tarawa next at 372/km2; Kiritimati, with over half the country’s land area, was next to last at 13/km2. Kanton, the only inhabited Phoenix island, was last with 41 persons on its 9 km2 of land. People are constantly moving between islands as individuals or as families in search of work, to change residence, or for education and family visits. Th e 2005 census reported that during 2000–2005, over 2,000 persons moved their place of residence from South Tarawa and the Gilbert Group (which includes North Tarawa) to the Line Islands. During the same period, 7,000 moved to South Tarawa from the Gilbert Group and the Line Islands, and a similar number moved from South Tarawa and the Line Islands to the outer islands of the Gilbert

2 Th e average number of children a woman gives birth to during her assumed reproductive life (15–49 years of age).

3 Th e census assumed no upper limit to working age, but counted less than 2,000 people aged 70 and over. 4 Th ese employment data suggest a much faster growth of economic activity during 2000–2005 than do national income data, as discussed in the following section. 16 Kiribati Social and Economic Report 2008

Group. Th is indicates that across the country, an average of 250–300 persons were on the move each month to new residence locations. Several hundred people emigrated from Kiribati in 2000–2005—mostly to New Zealand. A similar number returned to Kiribati from residence and work in Nauru, leaving the net eff ect on population during the period insignifi cant. However, migration from Kiribati to permanent residence abroad is expected to become increasingly important. A signifi cant net outfl ow is expected in the future under schemes now being planned and discussed by the Government with overseas development partners.

The Economy

Gross Domestic Product and Gross National Income Nominal gross domestic product (GDP) at market prices5 averaged $86 million during 2002–2006, equivalent to $947 per capita. However, nominal GDP per capita declined during the period—from $1,015 to $870—as earnings in most sectors stagnated or fell. Th e exceptions were fi nance (banking) and government service, where earnings rose by 100% and 25%, respectively. Nominal GNI in 2002–2006 averaged $159 million, 85% greater than GDP. (In some previous years, GNI was double GDP.) Nominal GNI per capita averaged $1,758. Overall, economic activity was sustained by rising government expenditure on wages and salaries (fi nanced initially by fi sh licensing revenues and subsequently by Revenue Equalisation Reserve Fund [RERF] earnings and borrowings), increased domestic borrowing by the private sector, wage employment in a number of large aid-funded projects, and by seamen’s remittances supporting household expenditures. Employment data from the 2005 census suggest a much faster growth of economic activity during 2000–2005 than do national income data cited above. Employment data indicate that recent activity in the South Tarawa trading and small-business sector may not have been fully captured by GDP data, or may not have yet shown up there. Th e 2005 census data on wage-earning occupations compared with what appears to be comparable data for the 2000 census (Kiribati NSO 2002) indicates a 5-year rise of 43%, or nearly 4,000 jobs. Real GDP at factor cost is estimated to have grown overall by 8% in the same period. It seems likely that 2005 census data on employment was collected on a somewhat diff erent basis from that in 2000, and that a simple comparison is not appropriate. Th e rate of growth of wage employment may have been closer to the reported GDP

5 Nominal values are used in much of the discussion because of an error in offi cial real (infl ation-adjusted) data available when the report was compiled. As infl ation during the period was low and the discussion concerns overall trends not absolute values, the use of nominal values does not distort the picture. For data, see Appendix 1, Tables A1.3–A1.5. Growing Risk in the Development Process and National Response 17

Figure 1: Kiribati Nominal Gross Domestic Product, Gross National Income, and Net Factor Income, 1997–2006

190

170

150

130

110 Value ($ ‘000) 90

50 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Gross national income Gross national product Net factor income

$ = Australian dollars.

Source: Kiribati National Statistics Offi ce. growth rate. However, expanding service sector and small-business activity may have created new jobs to an extent not captured in GDP data—possibly implying lower productivity and wages in the areas of job creation. Even with this caveat, the overall picture for the last 6 years is falling GNI. Th e interaction of GDP and net factor income in determining GNI between 1997 and 2006 is illustrated in Figure 1. Th e importance of external sources in Kiribati’s GNI is underscored by comparing GDP and GNI per capita on an annual basis (Figure 2). Th e diff erence is net factor income from abroad—the sum of EEZ access fees for foreign tuna fi shing vessels, earnings of the RERF (whether or not they are actually brought in and spent by the Government), and remittances of I-Kiribati men and women employed on overseas ships. Th e latter sustains household investment and general living standards in South Tarawa and the outer islands. In 2007, a noticeable increase in private sector economic activity was seen in South Tarawa, apparently linked to the return of workers from Nauru with funds for investment, increased government payroll expenditure since 2006, and projects implemented in 2006–2007. Th ese developments have not yet shown up in national income data, but are discussed later in the report. It is noteworthy that offi cial statistics do not capture all the stocks and fl ows of resources that go into or are generated by economic activity. Kiribati uses the Australian dollar as its domestic currency, and has no central bank to issue and exchange currency and hold offi cial external reserves. Th ere is no way for authorities to know how much money is in circulation, or what fi nancial 18 Kiribati Social and Economic Report 2008

Figure 2: Kiribati Nominal Gross Domestic Product and Gross National Income Per Capita, 1997–2006

2,500

2,000

1,500

Value ($) 1,000

500

0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

GDP per capita at market prices GNI per capita

GDP = gross domestic product, GNI = gross national income, $ = Australian dollars.

Source: Kiribati National Statistics Offi ce. resources are held overseas by private sector fi rms, individuals, and churches. Additionally, the movement of funds that do not go through the banking system cannot be measured. It is important to keep this in mind in the course of subsequent discussion of estimates of economic performance, the direction and fi nancing of investment, the profi tability of business, and the eff ectiveness of the taxation system.

Balance of Payments Attention is focused on the current account of the balance of payments,6 where some tracking of fl ows is possible despite the shortcomings of offi cial statistics noted previously. Kiribati runs a large defi cit on the goods and services account. Th e defi cit is balanced by factor income from abroad and transfers of foreign aid in the form of cash and goods and services. Some export of capital takes place when Kiribati entities (e.g., Kiribati Provident Fund or Bank of Kiribati) send abroad investable funds collected in Kiribati. Th is practice varies widely each year. In 2007, for example, the Bank of Kiribati exported $30 million of surplus funds. During 2002–2006, the value (free on board of goods imported averaged $86 million annually, while the value (free on board) of goods exported averaged just over $4 million each year—an average annual defi cit of about $82 million.

6 For additional data, see Appendix 1, Tables A1.7–A1.10. Growing Risk in the Development Process and National Response 19

Figure 3: Kiribati Balance of Payments Current Account, 1997–2006

100 80 60 40 20 0 –20 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Value ($ ‘000) –40 –60 –80 –100

Trade balance Balance on current account Net current transfers Net factor income Services balance

$ = Australian dollars. Source: Kiribati National Statistics Oﬃ ce.

Th e defi cit on the services account, which includes transport costs of imports as well as payments and receipts for travel and communications, averaged $31 million yearly during the same period. Th e combined defi cit, which averaged $113 million per year, was partly off set by positive balances on factor income from abroad (e.g., EEZ access fees, the RERF, and remittances) averaging $66 million annually, and other current transfers (mainly grants to the Government and churches) averaging a net $19 million each year. On this basis, the defi cit on current account during 2002–2006 averaged about $29 million annually, ranging from a low of $3 million in 2002 to a high of $60 million in 2005. Th e composition of the current account of the balance of payments is illustrated in Figure 3. Th e two major defi cit accounts of trade and services are off set by surpluses on net factor income and net current transfers. By defi nition, the current account defi cit must be balanced by incoming investments or borrowing via the capital account. Kiribati also records capital transfers to the Government in the capital account. Data are not yet available for 2006, and available data on private capital movements and foreign aid fl ows are insuffi cient to support completion of the compilation. Th e overall picture, however, is one of widening current account defi cits linked to increased government expenditure and dependence on foreign aid.

Prices Th e relative strength of the Australian dollar has contributed to price stability in Kiribati (Appendix 1, Table A1.6), although the real cost of imported goods is high by regional standards because of distance and volume factors. Several downward 20 Kiribati Social and Economic Report 2008 movements of the quarterly retail price index in 2004–2006 were attributed to increased imports of lower-cost products from the People’s Republic of China combined with a strengthening Australian dollar. Price control applies to a range of basic goods, which moderates short-term upward price pressures when these arise. Consequently, retail price index movements in 2003–2007 were mostly within a plus-or-minus 2% range. Th e exceptions were a two-stage adjustment of fuel prices in 2006 and 2007 (delayed Government approval of price rises caused the Kiribati Oil Company to incur signiﬁ cant losses), and an increase in taxes on tobacco and alcoholic drinks in 2006. Th e retail price index is likely to show an overall rise of 3%–4% in 2007.

Government Finance Th is is discussed in Chapter 4. Here, it is suﬃ cient to note that annual tax revenue appears to have changed little from around $30 million in recent years despite physical evidence of increased economic activity (Appendix 1, Table A1.17). As a consequence, at least in part, recent drawdowns on the RERF have been at levels that could undermine the capacity of the fund to provide permanent budget support.

Leading Sources of Development Risk

Economic and social development is presenting Kiribati with a range of economic, social, and political risks to individual and community well-being. Development risks confronting the country have origins both external and internal to Kiribati. Risks of external origin arise from global and regional changes in climatic and oceanic conditions, and shifts in trade, aid, and security relationships. Kiribati has no control over these risks, but appropriate public and private action may reduce the magnitude of their costly and unwelcome eff ects. Risks of internal origin stem from pressure on the natural resources, social structures, values, and governance systems of Kiribati. Th e unwelcome eff ects and costs of these risks can be reduced—some substantially—or avoided with appropriate public and private action. Eight principal sources of risk in the development of Kiribati are identifi ed. Th e fi rst two are external in origin and in no practical sense under the control of Kiribati, but well thought-out strategic responses off er hope of mitigating their impacts. For the other six sources of risk, their impacts and outcomes are highly dependent on the quality of Kiribati strategies for economic and social management. Appropriate policies off er considerable optimism for control, reduction, and even elimination of the impacts of these risks. Growing Risk in the Development Process and National Response 21

Climate Change

Global climate changes are taking place that are expected to aff ect Kiribati as a result of higher sea levels, permanent loss of low-lying lands to saltwater inundation, and increased salinity of freshwater lenses. More and longer rainless periods extending into droughts are expected. Also expected are more severe storms causing loss and damage to existing buildings and infrastructure. Th ese severe storms will necessitate increasingly costly climate proofi ng of existing and new construction, as well as more eff ective coastal defenses. Overall, the population carrying capacity of most atolls will be reduced, and some may become uninhabitable. Th ese changes are already perceptible. Th ey will become increasingly apparent in the next 5–10 years, and are likely to become more severe for the remainder of this century. International eff orts to reduce the rate and extent of climate change have scarcely begun, and possibilities of success are at best decades away. Kiribati must adapt to the expected impacts of climate change.

International Relations and Prices

Th e independent state of Kiribati is tied politically and economically to the outside world. It is unavoidably caught up in regional alignments and contentions, and necessarily paying and receiving prices in international markets that it cannot infl uence. Kiribati’s links to Asia are growing in importance, while it maintains a close association with Australia and New Zealand. Apart from the tuna fi shery, the regional basis of its links with Europe shows signs of weakening. Careful management of external relations is crucial for a small, remote nation confronting a range of risks from the interaction of domestic and international forces. In international markets, two prices in particular constitute risk for the Kiribati economy. Th ey are the exchange rate of the Australian dollar, which Kiribati uses as its currency, and the international price of oil. Kiribati has no control over either of these key prices. If the Australian dollar appreciates against other currencies, Australian dollars held or earned by Kiribati will buy more goods and services denominated in those currencies. On the other hand, Kiribati’s earnings or investments in those currencies will be worth less Australian dollars. If the Australian dollar depreciates against other currencies, the reverse happens. Kiribati could eliminate exchange risk by trading only with Australia and investing only in Australia. Th is is neither practical nor desirable given the physical distance and diff erences between the two economies. Exchange rates can move either way. Kiribati protects itself best against the risk of exchange losses and retains the possibility of gains by a reasonably diversifi ed pattern of trade and investment of reserves, which is currently the case. 22 Kiribati Social and Economic Report 2008

Oil prices have moved to historically unheard-of heights in recent years and are unlikely to fall back to past levels. Since Kiribati cannot escape these prices, it is important that the economy adjusts to them and not be artifi cially protected by government direct or indirect subsidy through the state-owned oil importer, the Kiribati Oil Company. Higher world prices should be allowed to fl ow through to the domestic economy, providing the incentive for greater eff orts by users to economize on fuel consumption and invest in conversion to competitive alternative fuels and energy sources.

Population Growth

Th e 2005 census indicates that fertility rates are slowly coming down. Th e overall rate of population growth will thus gradually decline. Nonetheless, there is a strong momentum in population dynamics that will drive the total upward for several decades, while the average age of the population will increase. Using median growth assumptions, the report of the census projects a population of 130,000 in 2025 (Kiribati NSO 2007), when a person born in 2007 will be 18 years old. Th is is an increase of 35%—or four persons for every three now alive, with 80,000 in the working-age group compared with 53,000 in 2005. Without an eff ective policy to limit population growth, Kiribati is heading for a population of 150,000 within the lifetime of people now alive, with half of its people living on Tarawa. Against the backdrop of climate change, this is a troubling prospect. Currently, the population is increasing by about 1,700 annually, adding to the number of people needing houses, land, education, health care, something useful to do, and a source of income suffi cient to meet basic needs—needs which already are not adequately met for the present population. Th e surest and most cost-eff ective way for Kiribati to raise expected future average income per person is to reduce the number of people who will share future national income. In 2004, the Government adopted a comprehensive policy on population that combines promotion of smaller families with programs for domestic and external migration. However, no institutional machinery was set up for implementation of the policy. Kiribati can reduce signifi cantly the risks associated with current projections of population growth, and should take steps to do so.

Limited Sources of Income

Some 40%–45% of Kiribati’s national monetary income is derived from tuna ﬁ shing access fees, the earnings of the RERF, and remittances of ships’ crews working overseas. Almost half of all domestic income, on the other hand, derives Growing Risk in the Development Process and National Response 23

from government wages and the public service accounts for more than half of all paid employment. Such dependence on a few sources of income constitutes signifi cant risk. Access fees for foreign vessels to fi sh for tuna in Kiribati’s EEZs have typically accounted for 25%–35% of government revenues. Th ese revenues are at risk from the known climate-driven volatility of tuna stocks, from potential long-term climate-related changes in tuna behavior, and from overfi shing of oceanic tuna stocks. Kiribati has often played a lone hand in negotiating access arrangements with foreign fi shing nations and tuna fl eets, weakening the regional negotiating position. Recently, Kiribati has adopted a more multilateral approach to these negotiations. A united front is essential if the Pacifi c island states are to receive a fair price from fi shing vessel operators for access to their EEZs and—no less importantly—negotiate stock management and licensing arrangements that conserve Pacifi c tuna resources. Remittances by I-Kiribati seamen and women working on overseas ships contribute directly to the support of almost 2,000 households in the country, bringing in around $12 million annually. Th is is equivalent to about 30% of government wages and accounts for 8%–9% of GNI. Th is vital fl ow of income to households is under threat from robust and increasing international competition to supply the global market for ships’ crews. A vigorous supply response from Kiribati is required to secure and enlarge its share of the market. Th e dominance of the public sector in wage employment—providing over two thirds of all wage jobs—creates a powerful vested interest that tends to resist reforms aimed at greater productivity that could increase economic activity and incomes overall. However, such a large public sector share of formal employment cannot be maintained, aff ecting directly the prospects of the young men and women joining the workforce every year. Th e great bulk of new jobs, sustainable livelihoods, and income will have to be found in private enterprise, the informal sector, and overseas. Recent indications of growth in these areas are encouraging, but sustained policy support will be needed.

Unplanned and Unmanaged Urban Growth

Th e movement to urban areas continues as people search for economic and social opportunities and a level of services that can only be satisfi ed where there is a critical mass of people. Well-planned and well-managed urban areas can be powerful generators of sustainable economic activity, even on the relatively small scale of South and North Tarawa and Kiritimati. Th e benefi ts from such areas fl ow to other islands as a result of more effi cient production and delivery of goods and services and provision of urban markets for outer island produce. 24 Kiribati Social and Economic Report 2008

To maximize such benefi ts requires a transformation of urban governance in Kiribati. Planning has begun for such a program of transformation, but its fi nancing and implementation will require an extraordinary eff ort at both the political and administrative levels. If not done, however, the already inadequate living conditions in urban areas—including those in the presently wide-open spaces of Kiritimati, the “new found land” of the 2002 Pacifi c Islands Economic Report (Asian Development Bank 2002)—will deteriorate further as services break down and governance systems fail to manage the continuing infl ux of young and increasingly disaff ected men and women. Th e specifi c physical planning and governance solutions for Tarawa and Kiritimati will be diff erent, but both will require a combination of technical skill, household and community support, political decisiveness, and substantial investment in climate-proofed infrastructure.

Underperformance by Government Departments and Public Enterprises

Governments for various reasons fail to carry out important elements of their national development strategies and plans. Political administrations and public sector agencies tend to lack courage and urgency when dealing with issues that require a departure from accustomed practices. In Kiribati, these problems have emerged in such issues as investing in the social and economic infrastructure of Kiritimati, improving public service effi ciency, maintaining existing public assets, and making space for an expanded economic role for the private sector. Reluctance to change seems to be due to an aversion to risk, pressure from vested interests in current arrangements, and lack of public awareness, which results in an absence of demand for change. As a result of arbitrary budget restrictions and management problems in recent years, the standards of general education, technical training, and public health have fallen to levels that now impede the eff orts of citizens to improve their incomes and well-being. Th e risks facing Kiribati and its people demand active, well-led, and well-funded national and local government departments and public sector agencies able and willing to adjust their approaches as needed to deal with changing requirements in governance, infrastructure, and social services. Th e existing political machinery—formal and informal—is apparently failing to provide the general public the information it needs to play its role in ensuring an eff ective and accountable government—information about policies and performance, and about means of demanding explanation and remedial action. Growing Risk in the Development Process and National Response 25

Passive Management of Public Finance

Sound public fi nancial management lies at the heart of government eff ectiveness. In recent years, fi scal policy and the government budget process have not received the political or administrative attention needed to ensure successful management of the development issues confronting the country. More eff ective revenue and expenditure planning is required, based on annual budgets transparently established in a published, multiyear framework that adhere to a realistic statement of medium-term public fi nancial policy. Plans must be implemented using up- to-date information. Th e Government has the capacity and expertise to do this with a minimum of external assistance if it accepts the challenge. If the Government does not actively pursue this course, however, the costs of inappropriate responses to emerging risks will escalate, the recurrent budget will continue to increase faster than revenue, and unplanned drawings on the RERF will be repeated. Further, despite the Government’s stated desire to protect national independence, dependence on external assistance to maintain acceptable living standards will increase.

Divisive Political Tendencies

Kiribati has been well served by its independence Constitution in terms of stability and national cohesiveness. Th e 30-year-old Constitution was based on extensive participatory consultation, but the passage of time has seen the nature of political and economic power change, traditional rules and relationships become monetized, and stress lines appear in national and local institutions of governance. Th e Parliament is not eff ectively supervising the executive or calling the Government to account. Increasingly, parliamentary decisions follow party lines rather than being based on well-debated merits of issues. Th e fi nancing of election campaigns is attracting larger amounts of local and foreign funding. Local, elected island and urban councils are practically powerless, except to delay or frustrate government measures they do not support. Service delivery is minimal. At the national level, the risk is that infl uences on decision making will become increasingly secretive and monetized, thereby corrupting government, accommodating external infl uence behind the scenes, and potentially allowing improper access to the resources of the RERF. At the local level, the failure of both traditional and modern forms of government could lead to the emergence of informal and nonaccountable forms of administration by urban organizations with criminal connections. 26 Kiribati Social and Economic Report 2008

Th e fi rst response to these risks should be frank and open acknowledgment of them by political leaders of all persuasions. Participatory consultation should follow on such constitutional issues as the formation and fi nancing of political parties; strengthening Parliament’s supervision of the executive; and the creation of eff ective, accountable island and town governments. Th e recently elected Government is committed to embarking on this process.

Strategic Priorities and Policies for Managing Development Risk

Th e eight leading sources of risk, as well as other development risks facing Kiribati, are examined in detail in the remaining sections of this report in the context of a comprehensive assessment of social and economic conditions in the country. Also scrutinized in detail is the scope of government responsibility for identifying and evaluating unfolding risks, consulting with citizens about them, guiding citizens’ actions, and taking direct action. A number of policy decisions and associated actions should be taken as a matter of priority to signifi cantly strengthen the country’s ability to manage development risk. Sixteen such policies and actions are outlined below. Th ey are seen as keys to unlocking the potential of many other activities to which the Government is preparing to commit itself and the country in the years ahead. Many of them coincide with strategies and activities that are part of the program of the recently elected Government. Most of them involve strategic decisions that may involve some political and fi nancial risks, but they are essential to counter the greater risk of continued stagnation or decline. Th ese recommendations are the product of the comprehensive assessment presented in the following sections of this report, where they are described and justifi ed in the relevant sector context.

(i) Implement a sustained, comprehensive population policy aimed at stabilizing the total population of Kiribati at or below 130,000 people by 2030. (ii) Institute community-based poverty-watch surveys to enable timely action to counter inequitable distribution through public investment, improved services, or other means. (iii) Unify and accelerate planning and preparations for dealing with the physical, economic, and social impacts of climate change throughout the country. Growing Risk in the Development Process and National Response 27

(iv) Strengthen public education and health countermeasures against communicable and lifestyle diseases, and upgrade the quality and outreach of public health services. (v) Overhaul the general education curriculum and provide the resources to equip secondary school leavers with regional-standard English language skills. (vi) Upgrade and redirect technical training to meet regional employment standards, raise standards in local technical trades, and enable planned emigration. (vii) Upgrade and expand the Maritime Training Centre to double the yearly output of seafarers trained to international standards and able to secure seagoing positions in an increasingly competitive market. (viii) Place Kiribati’s national negotiating weight fully behind regional eff orts to impose sustainability-based management controls on access to Pacifi c tuna stocks. (ix) Undertake the devolution of governance, management, and fi nancial systems to develop Kiritimati Island by 2030 as a world-class center for ecotourism, sport fi shing, and low-impact economic activities with a population of 20,000–25,000. (x) Establish the Phoenix Islands as the world’s leading tropical marine protected area, which international conservation foundations and controlled visitors will be prepared to pay the Government and people of Kiribati to protect and preserve. (xi) Commence progressive renewal and transformation of South Tarawa’s urban areas, and commit the institutional and fi nancial resources— both domestic and external—needed to manage and sustain the process. (xii) Close, sell, or rationalize all public enterprises. Close or sell nonstrategic public enterprises to local or foreign private investors for operation on a commercial basis. Enforce corporate governance standards for strategic public enterprises, with any fi nancial support to be on-budget, transparent, and tied to community service obligations. (xiii) Ensure that international fuel prices are passed on to the domestic economy, and promote the use of alternative fuels and energy sources. (xiv) Strengthen the management of Kiribati public fi nances by clearly distinguishing budgeting functions from economic planning functions within the Ministry of Finance and Economic Development. Position the annual budget fi rmly in a multiyear 28 Kiribati Social and Economic Report 2008

framework, adopt a progressive attitude to increasing tax revenue, and explicitly link performance monitoring to operational planning. (xv) Establish a statutory structure for the RERF that protects the value of a core fund and provides restricted access by the Government to fund resources for recurrent budget revenue and certain types of development project investment. (xvi) Undertake participatory consultations on constitutional reforms aimed at strengthening the accountability of government and parliamentary supervision of the executive, establishing competent and eﬀ ectiv e local government, and ensuring the transparency of the organization and funding of political parties.

Critical factors determining the outcomes of the development process and the future well-being of the people of Kiribati will be the way the people of Kiribati view themselves and the world, how they conduct their lives in the face of perceived risks, and how successful they and their government are in identifying and managing development risks. Th e ultimate aim of this report is to strengthen the ability of the people of Kiribati to achieve the national aspiration of Te Mauri, Te Raoi ao Te Tabomoa (Good health, happiness, and prosperity). To help achieve this aim, national capacity to recognize and deal with development risks needs to be enhanced, and so support and contribute to the success of the National Sustainable Development Plan 2008–2011 by assessing the nature and sources of the main risks confronting the country and its people and evaluating how they can best be managed. Social Response to Development Risk

he response of individuals and families to risk to their well-being may vary according to cultural conditioning, education, skills, and access to resources, among other things. Individuals may respond by reducing subsistence production in favor of wage-earning activities, by acquiring Tnew skills, by moving to new a location, or by demanding better services and greater infl uence in policies aff ecting them. Th e response also may be to succumb to despair and drift into destructive behavior. Families are dispersed by internal and external migration, subjecting mutual support systems to the strains of distance. Distance—as well as education, overseas employment, and exposure to foreign infl uences—can weaken or modify traditional values. New sicknesses and addictions can emerge. Some family members may lose their sense of belonging to a cohesive and caring community and vent their frustrations on weaker members of society. Any of these responses represent change and may generate new forms of risk. Management of risk by government requires agreement on policies, priorities, and action within government and civil society. Actual management may involve the application by government of publicly supported administrative controls over certain actions and behavior.

Population and Migration

Population Trends

While the overall population of Kiribati continued to increase between the censuses of 2000 (Kiribati National Statistics Offi ce [Kiribati NSO] 2002) and 2005 (Kiribati NSO 2007), a diff erent pattern emerged from the latter census. Th e 2005 census reported only 7 of the 16 islands in the Gilbert Group registering 30 Kiribati Social and Economic Report 2008 a decrease in population, indicating more rural stability than was evident in the 2000 census. In the 2000 census, all the islands of the Gilbert Group—except Tarawa (both North and South) and Nonouti—recorded negative growth rates. Th e highest growth rates in 2005 were in Kiritimati (8.0%) and Tabuaeran (7.4%) in the Line Islands, and in North Tarawa (4.8%) in the Gilberts. Th e variation of population growth rates among islands is apparently attributable to internal migration in search of cash income opportunities and the spread of peri-urban settlements on Tarawa. Th e South Tarawa population grew by 9.8% between 2000 and 2005, North Tarawa (particularly the southeastern islets) by 26.8%, Kiritimati by 49.1%, and Tabuaeran (Fanning Island) by 44.5%. Th e population growth rate in 14 outer islands (9.5%) was slower than the overall population rate, and seven of those registered a decline. Th e net growth rate of population in South Tarawa slowed between 2000 and 2005, the result of a reverse fl ow of 6,500 people (1,300 per year) from South Tarawa to North Tarawa and several other islands in the Gilbert Group. Th is apparently was due in part to the income incentive eff ect of the copra subsidy. Views that South Tarawa had become uncomfortably crowded and monetized also may have played a part. However, based on lifetime migration data over several census periods, the Gilbert Group has sent a net 15,000 migrants to South Tarawa (11,000) and the Line islands (4,000). A steady fl ow of migrants continues to move to Tarawa and—in many cases—on to Kiritimati. Th e average population density in Kiribati also continued to increase according to the 2005 census, to 127 persons per square kilometer (km2) from 116/km2 in 2000 and 107/km2 in 1995. Th e Gilbert Group as a whole recorded a steady increase in population density between 1995 and 2005, although for several islands population density diminished as population declined. South Tarawa’s population density rose steadily from 1,799 persons per km2 in 1995 to 2,330/km2 in 2000 and 2,558/km2 in 2005. Th e Tarawa islet of Betio was the most densely populated islet, with 10,509 persons on an area of 1.7 km2 at the 2005 census. Density in the Line and Phoenix groups was low, but increased steadily from 13 persons per km2 in 1995 to 14/km2 in 2000 and 20/km2 in 2005. Kiribati’s dependency ratio—i.e., the proportion of the economically dependent population relative to the productive population—was 74 in 2005. For every 100 persons of working age (15–59 years), there were 74 persons in the dependent ages (0–14 years and 60 years and over). Th is represents a decline in Kiribati’s dependency ratio from 83 in 2000 and 87 in 1995. Th e dependency ratio in urban South Tarawa, at 64, was generally lower than in rural areas. Th e average number of persons residing in a household is a measure that elaborates on the dependency ratio at the most basic unit of social and economic organization, and allows further assessment of the health and economic well-being Social Response to Development Risk 31 of the population. Th e household is increasingly the basic unit of residence and social organization in Kiribati, and comprises persons who are economically active and those who are not. Overall, the 2005 census data indicate that households are tending to get smaller as population grows. Th e average household size decreased from 6.4 in 2000 to 6.3 persons in 2005. In the urban areas of South Tarawa and Kiritimati, the average household size was larger but also decreased between 2000 and 2005—from 7.8 to 7.5 persons in South Tarawa, and from 7.4 to 6.7 in Kiritimati. Kiritimati reported the fastest population growth rate and the steepest fall in household size in 2005. Th e average household size in rural areas remained unchanged from 2000 to 2005, at 5.6 persons. Dependency ratios and household size are important for diff erent reasons in urban areas and rural areas. In urban areas, households must depend on cash income to meet the daily needs of household members. Th e generally low level of wages means that households need to have as many income earners and income sources as possible. A household may be large in size, but if it includes some high incomes or a good number of income earners relative to the number of dependants, then size is not a problem. Unfortunately, it is not uncommon in urban areas to fi nd households having more than 10 members with only one or two of them earning income. In such cases, the household lives in hardship because its aggregate income is not suffi cient to meet daily needs. Dependency ratios, household size, and aggregate income are less the issue in the semi-subsistence context of rural areas as is the need for households to be toamau—i.e., have a balance of age and gender among members to enable the division of labor necessary to meet the everyday needs of the household. Put diff erently, it is of utmost importance that rural households are toamau so that there is someone to carry out all essential subsistence activities—fi shing, cutting copra, toddy cutting, and cooking. Traditionally, a household having no one to do a particular daily activity—a young man to cut toddy, for example—would seek assistance from another household, often one to which it was closely related. Th is tradition is changing, however, mainly because of increasing monetization and the aspiration of households to be independent. Th e apparently stable average household size in the outer islands masks the reality that a signifi cant number of households do not have the right balance of age and gender in their membership, and certain key household needs are not being met. Th e increasing number of households in the outer islands lacking toamau is a trend that appears certain to continue, based on data from the censuses in 2000 and 2005. Th e outer islands continue to lose people of economically active age to urban areas. According to 2005 census data, 15,149 persons left the outer islands in search of better opportunities in South Tarawa, the Line Islands, and overseas. Th e proportion of the rural population in the 20–29 age group is distinctly 32 Kiribati Social and Economic Report 2008

Figure 4: Kiribati Population Distribution by Age and Sex, 2005

75+ 70–74 65–69 Male Female 60–64 55–59 50–54 45–49 40–44 35–39 30–34

Age Group 25–29 20–24 15–19 10–14 5–9 0–4

8765432 1 0 1 2345 678

Percent (%)

Source: Kiribati National Statistics Offi ce (2007). smaller in both the 2000 and 2005 censuses, indicating this is the age group leaving the outer islands. Kiribati has a youthful population. Th e median age of 20.7 in 2005 means that half the population was younger than 21 years old. Some 37% were younger than 15 years old, and only 5% were 60 years and older. It appears that the population aged slightly in 2005, however, as the median age was 19.7 years in the 2000 census. Th e rise in the median age is attributed to a decrease in the proportion of people aged 0–14 years between 2000 and 2005 (because of a reduction in the average number of births per woman), and an expansion in the proportion of people aged 15–59. Th e proportion of males and females in 5-year age groups in 2005 is shown in the population pyramid in Figure 4. A distinctive feature of the pyramid is the indent of the 30–34 age group, showing that this age group is smaller in number than both the younger and older age group. People in the 30–34 age group were born in 1970–1975, when there was a vigorous and eff ective family planning campaign in Kiribati. In the same vein, the 0–4 age group at the base of the pyramid is smaller than the 5–9 age group. Th is resulted from lower fertility in 2000–2003, probably linked to greater public discussion of population issues and increased activity of family planning and family health agencies during those years. Th e fertility rate dropped to a record low in 2003, but subsequently increased as family planning eff orts apparently were not sustained. Th e success of the eff orts of these agencies in reducing births in two separate periods suggests there is signifi cant scope for an eff ective population policy aimed at achieving Social Response to Development Risk 33

earlier population stability in Kiribati than would otherwise occur. Sustained implementation of a comprehensive population policy could substantially reduce the population growth rate and the time needed to achieve population stability. Th e total fertility rate provides a measure of the average number of children a woman gives birth to during her assumed reproductive life (15–49 years of age). It is calculated from the number of live births, by age of women, in a given year— the age-specifi c fertility rates. Compared to the 2000 census, the 2005 census showed a fall in the number of births to an estimated 2,462. Th e total fertility rate thus declined quite dramatically from about 4.5 during the 1990s to around 3.5 in 2005. Th e overall drop in fertility can be attributed to all age groups of women, although the largest decline was in the 25–29 age group (Kiribati NSO 2007, xiii). Th e declining fertility rate is consistent with the rise in the contraceptive prevalence rate among women of childbearing age, which reached 22% among this group in 2005—an increase of around 2% over 2000–2004 rates. Despite the downward trend of fertility, the rate is still high in view of the economic, social, and environmental prospects facing Kiribati. Further, the risk of the fertility rate rising again is very real given the youth of the population and the high percentage of women of childbearing age (around 80%). Th e Government has been very slow to implement its National Population Policy. Th e policy should be accorded the urgency it deserves. Stability of the population will come from promoting smaller family size through self-management of fertility. Th e infant mortality rate was markedly lower in 2005. Based on census data for the number of children ever born and still alive, the infant mortality rate was estimated at 52–53 for males and 51 for females. Th is is a vast improvement on the 1995 indicators, when the infant mortality rate was 67 for males and 56 for females. Child mortality—i.e., the probability of dying between the ages of 1 and 5—was estimated at 18 male deaths and 17 female deaths per 1000 persons of that age in 2005. Th is compares favorably with the 1995 indicators of 20 for males and 21 for females. Th e life expectancy at birth in 2005 was calculated at 58.9 years for males and 63.1 years for females, a deterioration from 2000 indicators. It is important to note that, despite marked improvement in key social indicators over the last 10 years, Kiribati still ranks relatively low by Pacifi c island standards. For life expectancy at birth, in 2005 Kiribati ranked 17th out of the 22 Pacifi c countries and territories covered by the Secretariat of the Pacifi c Community (SPC) (SPC 2005). Kiribati’s infant mortality rate ranked 18th according to Pacifi c Islands Populations 2007 data collated by the SPC Statistics and Demography Programme (SPC 2007). Th ese regional comparisons suggest 34 Kiribati Social and Economic Report 2008 that Kiribati is lagging behind most of its neighbors in the attention devoted to social issues. Th e challenge for the Government of Kiribati is to establish eff ective mechanisms to address these shortcomings.

Internal Migration

Internal migration from the outer islands of the Gilbert Group to Tarawa has been common for years as people respond to perceptions of better conditions and opportunities outside their home islands. Th ey leave for the urban centers of South Tarawa in search of improved economic opportunities—particularly wage employment, better access to health and education services, and an easier and more exciting lifestyle. Th e lack of opportunities to earn a decent living commonly motivates migration from home islands. Data on internal migration from the 2005 census showed that the Gilbert Group (excluding South Tarawa) was losing people to South Tarawa and the Line islands, particularly Kiritimati and Tabuaeran. South Tarawa was the destination of 11,149 people, mostly from the Gilbert Group, while the Line Group was the destination for almost 4,000 from the Gilbert Group. Census data for 2005 showed that migration from islands of the Gilbert Group to South Tarawa had leveled oﬀ . Such migration was highest in the inter- census period of 1995–2000, when South Tarawa’s population grew at an annual rate of 5.2% and almost all islands in the Gilberts recorded negative growth. Th e annual growth rate for South Tarawa has dropped to 1.9%, only marginally higher than the national population growth rate of 1.8%. At the same time, higher growth rates in Kiritimati, Tabuaeran, and North Tarawa between 2000 and 2005 were driven largely by migration from other islands of the Gilbert Group. North Tarawa is increasingly becoming the destination for public service retirees who cannot acquire land to build homes on in South Tarawa. As part of its strategy to relieve population pressure on the Gilbert Group, particularly South Tarawa, the Government successfully promoted internal migration through its resettlement program for the Line Islands in the 1980s. Th e lifting of restrictions on entry to Kiritimati in the early 1990s encouraged unassisted individual migration to Kiritimati and Tabuaeran, which continues. Between 1990 and 1995, both Kiritimati and Tabuaeran had average annual population growth rates of over 4%. Th e 2005 census reported that around 1,000 persons moved from the Gilbert Group and South Tarawa to the Line Islands—especially Kiritimati and Tabuaeran—between 2000 and 2005. Such movement will be promoted in the future when strategic emphasis is placed by the Government on creating outer island growth centers. Growth centers Social Response to Development Risk 35

are intended to address the imbalance of social and economic development within the Gilbert Group as well as stem the drift of people to South Tarawa. Kiritimati, with a population over 5,000 in 2005 and an area of 400 km2 (about half of the total land area of Kiribati), has been identiﬁ ed as one of the growth islands. Th e other two are Butaritari (Northern Gilberts) and North Tabiteuea (Southern Gilberts). In this connection, a series of ADB-funded technical assistance projects have been undertaken since 2004. A draft Kiritimati Island Development Plan was released in 2006 (ADB 2006) and is referenced in some detail in Chapter 3 of this report. Progress on the two growth centers in the Gilbert Group is not as advanced. Although North Tabiteuea is the location of a rural hospital due to be completed in mid-2008, this does not appear to be part of a coherent approach to development of the Southern Gilberts.

International Migration

Th e limitations of economic opportunities in Kiribati mean that some skilled and qualifi ed I-Kiribati will want to move to other countries for employment and possible settlement. Th e Government recently has placed emphasis on international migration, which it sees as an important element in plans supporting its objective of a stable Kiribati population by 2020–2025. Emigration is linked not only to population, but also to household incomes, employment opportunities, training, and climate change. In the likely scenario of submersion of low-lying islands of Kiribati by rising sea levels, relocation or migration of aff ected populations is inevitable (Offi ce of Te Beretitenti 2007, 15). Th ere has been a trickle of outward migration over the years, particularly to New Zealand. Th e numbers have risen following introduction of New Zealand’s Pacifi c Access Category, an immigration lottery under which 75 I-Kiribati are allowed to migrate to New Zealand each year irrespective of their socioeconomic background. Th e number of I-Kiribati seeking to migrate to New Zealand has increased greatly since the introduction of this scheme; between 2006 and 2007, the number of I-Kiribati applicants under the scheme more than doubled from over 300 to around 700. More recently under the Kiribati–Australia Nursing Initiative, the fi rst group of 30 student nurses began training in Australia. Upon successful completion of training, the graduates will be able to enter the workforce and reside in Australia, or do the same in other countries that accept Australian nursing qualifi cations. Net emigration is still insignifi cant, but all indicators point to an increase over the next few years as the Government actively pursues further opportunities for emigration with other Pacifi c Rim countries. 36 Kiribati Social and Economic Report 2008

National and Local Governance

National Governance

Th e Republic of Kiribati is a well-functioning parliamentary democracy that combines features of the Westminster and presidential models of government. By Pacifi c island standards, the parliamentary and political system of Kiribati is relatively stable. In the 28 years since independence, political leadership has changed only three times. A total of seven motions of no confi dence were proposed between 1979 and 2007; only three were successful, each leading to dissolution of Parliament and fresh elections. Two of the three successful no- confi dence motions—in 1994 and 2003—led to a change of government. Th e political stability of the country is attributable in large part to its Constitution, which was the result of a process of public consultations through the Constitutional Convention. Representatives from all islands participated in the convention, representing a cross-section of major groups, including unimwane (male elders and traditional leaders), women, churches, unions, and other interest groups. Th e Constitution incorporates a number of “home grown” provisions which its framers believed refl ected the political culture of Kiribati and its fundamentally egalitarian sociopolitical structure and ethos. Two key constitutional provisions have contributed to political stability. One is the direct election of the Beretitenti (President) by the people. Another is that the Maneaba ni Maungatabu (Parliament) cannot elect a new government after the defeat of the President in a motion of no confi dence. An additional factor contributing to political stability is the strong sense of national identity—much helped by the use of a single national language—and the education of most current political leaders and senior public servants in the 1970s and 1980s at a single national secondary school (King George V) and the regional university (University of the South Pacifi c).

Political Parties Although the Constitution is silent on political parties, they have become an integral part of the contemporary political landscape of Kiribati. Political parties now play a signiﬁ cant role in the formation of a government following general elections, and in the maintenance of a government once it has been formed. Political parties also form a major support mechanism for individual members of parliament in their eﬀ orts to satisfy the aspirations of their constituencies, as well as those of Kiribati as a whole. Th e past decade, however, has seen the emergence of a number of concerns that have contributed to a consolidation of political parties and a hardening of views that divide the electorate. Th ese concerns include the recurring struggle for Social Response to Development Risk 37

the national presidency between two brothers; a parliament where the division on any issue coincides with party affi liation; a sharpening of interdenominational diff erences between Catholic and Protestant churches, mainly in connection with population policy; and Kiribati’s interests as an aid recipient in the evolution of political tension between the People’s Republic of China and Taipei,China. Voter behavior in the elections of 2003 and 2007 highlighted not only an acceptance and mature attitude toward the election process, but voter ownership of the process. Voters now understand how votes can be used to maximum eff ect to get their candidate elected, particularly by casting less than the required number of votes in an election. Voters also have learned to withhold their votes as a way of making a statement or protesting a particular issue or candidate. Th e 2007 election for parliament and the presidency, while smooth and fair, saw evidence that a sizeable number of voters who supported the opposition party deliberately did not vote in the presidential election to protest the exclusion of their candidates in the nomination process. Th e election was dominated by two like-minded parties, which, between them, commanded 34 members of the 46-member Parliament. Th ese developments highlight the risk of confrontational and divisive politics in an essentially bipolar parliament spilling over to the electorate and the nation at large. Th is phenomenon has not been a feature of Kiribati politics in the past. Divisiveness has led to violent confrontation and political crisis in other countries. Political developments such as the National Leadership Convention (described later in this section on national governance) suggest it can be avoided in Kiribati. But even in the absence of confrontation and violence, a sharply divided parliament could result in it being unable to fulfi ll its oversight function in good governance, ensuring that government performance is subject to eff ective scrutiny and accountability. A United Nations Development Programme (UNDP) report in 2001 drew attention to the political domination of the Parliament by the Cabinet, and in some cases, political parties (UNDP 2001). Th e report suggested that, as a result, Parliament was deprived of its powers and its capacity to properly exercise check and oversight functions. Some long-standing issues relating to the shortcomings of Parliament in its oversight function as highlighted in that and other reports (e.g., Transparency International 2004) are discussed in a following section. It is important to note that for most, if not all, of these issues the common denominator seems to be the split of Parliament into two opposing camps, and the absence of measures and arrangements within it that foster bipartisan consultations and collaboration. A bipartisan bills committee, which screens bills and subjects them to intense scrutiny before they are presented to Parliament, is one such measure that is needed. 38 Kiribati Social and Economic Report 2008

Th e time is ripe for a close look at the role of political parties and issues relating to their conduct, and for measures to be put in place to regulate them— especially in regards to general and presidential elections. Such measures should include, among other things, provisions for the registration of political parties and requirements for their ﬁ nancial accounting, including the control and reporting of donations received. Given allegations of the major parties’ use of foreign funding in recent general and presidential elections, the proposed measures would not only contribute to making the conduct of political parties more transparent, but would guard against the risk of them becoming conduits for foreign interests. Foreign funding of political parties is never free of conditions that have the potential to compromise or undermine national sovereignty and the public interest.

Oversight Function of Parliament Shortcomings of Parliament in its oversight role have been of concern within and outside Kiribati. Most of these issues pre-dated the present Government by a decade or more:

• Lack of bipartisan cooperation, and the predominance of party agendas emphasizing either the Government or the Opposition position, often at the expense of the merits of the issue in question. Th is has led to certain bills not receiving the consideration they deserve because they were initiated by one side or the other. Such examples from the last Parliament were the Government’s Leadership Code Bill and the Opposition’s Government Borrowing and Guarantee (Amendment) Act 2006. • Parliamentary debate that sometimes deteriorated into personal mudslinging, vendetta accusations, and point scoring. • Domination of Parliamentary and select committees by Government members. Although this may be justiﬁ ed by the Government’s present numerical superiority in Parliament, the result is that members of these committees—including the Public Accounts Committee—invariably see their role as reporting in favor of the Government. • Experience with Parliamentary commissions of inquiry, where ﬁ ndings were never publicly revealed and reports never tabled and debated in Parliament. Th is shows the need for the Commissions of Inquiry Ordinance, as well as other laws bearing upon the role and function of Parliament, to be updated.

A shortcoming relating to Parliament’s role in the oversight of public funds dates back to 1993, when Parliament failed to debate the Auditor-General’s Social Response to Development Risk 39

Report. Th e current practice is for the Auditor-General’s Report to be submitted to the Public Accounts Committee, which then prepares its own report on the Auditor-General’s Report and merely tables it in Parliament without any debate or close scrutiny by Parliament. Th is practice falls short of the Paciﬁ c Islands Forum’s Eight Principles of Accountability and the Best Practice Guide for Forum Island Countries Legislatures (Forum Economic Ministers Meeting, 1997), to which Kiribati is a party. In 2007, public controversy over the legality of the Government’s maintenance of an overdraft facility in the Bank of Kiribati highlighted the outdated character of the two budgetary laws: the Public Finance (Control and Audit) Ordinance 1976, and the Government Borrowing and Guarantee Ordinance 1973. At issue were Parliamentary approval of the overdraft and the need for provision in the annual budget for the payment of interest. Both previously noted budgetary laws predated the Constitution and, contrary to the accepted principles of good governance, they do not provide for approval by Parliament of major government loans and expenditure (UNDP 2001, 33). Under the Borrowing and Guarantee Ordinance, for example, the minister of ﬁ nance and economic development “may guarantee” borrowing on behalf of the Government “as he may think” without the need for referral to, or approval of, Parliament.

The Leadership Code Th e Leadership Code Bill was presented to Parliament during its November 2006 sitting. Introducing the bill, the Government highlighted the principles of the public accountability of leaders and no one being above the law. Th e bill did not proceed beyond its ﬁ rst reading as it was withdrawn following rejection by Parliament of the necessary constitutional amendments (which failed to secure the required two-thirds majority). Th e present Government has indicated its commitment to re-present the bill and has called on members of Parliament to give it the support it deserves. During preparation of the bill, the Government embarked on building a cooperative partnership with civil society, traditional leaders, and religious groups. Th is partnership was envisaged as focusing solely on the concept of the leadership code, but developed into a broader approach to nation building, and fostered an environment of shared collective responsibility for key issues facing the nation. Th e partnership manifested itself in the National Leadership Convention convened in May 2005, with the heads of the Catholic Church and the Kiribati Protestant Church as well as key government ministries involved in its planning. Th e outcome exceeded expectations. Many resolutions endorsed by the convention went beyond where political governments normally venture, with a strong element of self-examination. Four of the convention’s resolutions pertain to governance: 40 Kiribati Social and Economic Report 2008

(i) Issues and challenges facing youth are a reﬂ ection of the quality of leadership, starting from the most basic unit, the family. Parents and grandparents, churches, women, youth, and all leaders in Kiribati were called upon to lead by example and promote dialogue with children. (ii) Christian churches should develop and strengthen programs promoting Christian values, with a focus on peace and harmony. Th e Government should assist with the funding of these programs. (iii) A leadership code should be developed and ﬁ nalized as soon as possible. Leaders in Parliament were reminded to follow basic courtesies and customary conventions in speeches in Parliament. (iv) All leaders should take a proactive role in maintaining peace in Kiribati.

The Constitution It is almost three decades since the Constitution of the Republic of Kiribati was promulgated. In 1998, a Constitutional Review Commission carried out consultations in all the inhabited islands of Kiribati, and a number of issues of concern emerged through that and other channels. Among them were the role of political parties in the governance of Kiribati, the duality of the roles and functions of the President, reduction of the limit on presidential terms from three terms to two terms, and the proposed increase in the number of ministers. Public interest in these issues points to the need for another review of the Constitution to make it more responsive to changing political realities in Kiribati (Box 1). Th e country is now inextricably part of a globalizing world, driven by increased political awareness and demands on government.

Local Governance

Local governance is in the hands of island councils in the 21 islands of the Gilbert and Line groups, the urban council in South Tarawa, and the town council in Betio. Th e functions of the councils are wide-ranging and cover the public policy areas of agriculture, livestock, and ﬁ sheries; buildings and town and village planning; education; forestry and trees; land; relief of famine and drought; markets; public health; public order, peace, and safety; communications and public utilities; and trade and industries. Local governance in Kiribati is founded principally on Local Government Act No. 2 of 1984. Based on colonial legislation passed in 1966, the act has been amended 10 times since its enactment; the most recent and comprehensive amendment was passed by Parliament in 2007. Th e passage of the Local Social Response to Development Risk 41

Box 1: The Political and Social Environment for Economic Reform

Attention is drawn in this report to the social context in which Kiribati’s economic and fi nancial institutions operate, and the powerful infl uence on their performance exerted by political considerations and perceived public opinion. Particularly compelling are the need for those in authority to maintain and reward political connections, the strength of bubuti,a and the desire at all levels not to be seen as going against traditional and accepted norms of mutual support and communal responsibility. Th ese informal rules governing the behavior of politicians and offi cials are stronger than formal rules. Corruption, or the abuse of public offi ce for private gain, is not as rife in Kiribati as in some other Pacifi c nations. Nevertheless, the holding of public offi ce implies that you will take care of your kinsfolk and those who sponsored or elected you. Th ese forces are at work throughout national and local governments, and do much to explain the behavior of people and the conduct of institutions. Th ey help elucidate why advice on economic management and institutional reform contained in reports such as this is not generally followed, even when it accords with established public policy or is apparently accepted by the Government. Th e fate of proposals for reform of public fi nancial management, for reduction of the number and scope of public enterprises, and for encouraging the private sector to enter public enterprise “territory” represents striking examples of this phenomenon. A focused and up-to-date account of the situation in Kiribati is provided in a new ADB report. It applies an analytical framework of motivational factors to help shape the design of interventions in the public sector aimed at capacity development. Th e report, Kiribati’s Political Economy and Capacity Development (Duncan 2009), is being published at the same time as this Pacifi c Islands Economic Report (PIER). An approach developed by researchers in political theory and policy analysis at Indiana University in the United States is used to explain why Kiribati has not put into practice economic reforms that have formed part of successive offi cial development plans. Th e fate of development plans for public enterprises is examined, along with why the necessary support for collective action to reform the public sector has been lacking. Th e analysis points to conclusions broadly similar to those reached by other observers, and cautions against expectations that behavioral change can be quickly or easily achieved. But like this PIER, it acknowledges that there are signs of changing attitudes. It fi nds grounds for optimism in the current reformist President

a A request from a relative or friend that cannot normally be refused without damaging the relationship.

Continued on next page 42 Kiribati Social and Economic Report 2008

Box 1 continued

and the support he has from a small but infl uential group of like-minded, energetic, and experienced bureaucrats in key positions—a formula, the report notes, that has proved eff ective in guiding change in other countries. Th e report recommends that ADB direct its technical assistance toward improving community understanding of the benefi ts of public sector reform, and toward building the capacity to implement such reform. In a detailed appendix to the report, a framework for consideration of support to capacity development in Kiribati is provided. Th e report stresses the depth and extent of the problem, repeating earlier warnings about the current low level of English language skills and other essentials of primary and secondary education. A multiyear approach is recommended, using international professional trainers. Th e report asserts that recognition of the need for more and better-designed capacity development in the public sector is a key requirement for improved economic performance. Overall, the report supports the recommendations of this PIER and adds a valuable dimension to them.

ADB = Asian Development Bank.

Source: Duncan (2009).

Government (2006) Amendment Act was preceded by a workshop discussion of amendments attended by members of Parliament, and by subsequent consultations led by members in their respective constituencies. Th e transitional provisions of the act provide for all island, urban, and town councils to be dissolved within 3 months of its entry into force. Pursuant to this provision, in August 2008 all councils were to be dissolved to standardize the terms of offi ce of all elected council members. Th e nationwide election of new councils will follow in accordance with the provisions of the Elections Ordinance. Two new provisions introduced by the 2006 Amendment Act will contribute to making the councils more accountable to their constituents. One is the election of the Tibi Kauntira (chief councilor) by voters instead of by council members. Th e second is provision for removal of the chief councilor through a motion of no confi dence, which can be moved by an elected council member and carried by support of not less than two thirds of all elected council members. All island councils have long-standing diffi culties with administration. A World Bank report in 1998 listed problems such as councilors’ inadequate formal training in administration and lack of technical expertise, and constraints imposed by informal communal pressures (World Bank 1998). One source of such pressure—and a very infl uential one at island level—is the unimwane (male elders and traditional leaders). Th rough their association (Botaki ni Unimwane), Social Response to Development Risk 43

they exert a powerful infl uence on island aff airs. It is an informal force that island councils can ill aff ord to alienate. A representative of the unimwane sits on each island council as a special member. Councils receive a substantial part of their budget from the central Government. Th e budget process is an eight-step procedure that begins with the Treasurer preparing a draft budget for each council on the basis of the previous year’s budget and any new information or priorities set by the relevant island council. Draft budgets then are tabled before meetings of island councils for fi rst reading, and afterward discussed in maneaba. Constituents at this point have the opportunity to scrutinize budget priorities set by their council and suggest changes. Draft budgets then are brought back to island councils for second reading and for incorporation of changes suggested in maneaba. Draft budgets next go to the Ministry of Internal and Social Aff airs (MISA) for assessment. Any modifi cations suggested by MISA are communicated to councils for concurrence. At this stage, draft budgets are presented to the minister of fi nance and economic development for fi nal approval. Th is fi nal stage takes place each year around March, 2 months into the fi nancial year. Despite the 2-month delay, the budgeting process is transparent and accountable, and both formal and traditional systems are well integrated into the process. Frustrations frequently arise because councils depend on the central Government for funding of their development projects. Planning for local development—including the formulation and planning of development projects for an island—is the responsibility of the Island Development Committee. Committee membership includes representatives of interest groups such women, youth, and the unimwane. Since 1997, island development committees have been strengthened with the appointment of island development offi cers, who act as secretaries of the island development committees. Th ese offi cers are public servants seconded to island councils to augment the capacity of the councils in general and the island development committees in particular. Th e principal interest groups and traditional decision makers participate in the formulation and planning of development projects, allowing them to claim ownership of the projects. However, the reality of the project implementation process is often a long delay between the time projects are submitted to the Ministry of Finance and Economic Development (MFED) and their approval and actual implementation. Outer island members of Parliament claim they are frequently told the reason for delay is the shortage of money for development and the need for external funding. Th ey claim that they have to argue for their projects at every session of Parliament. Th ey are also told that projects proposed need to satisfy the objectives of the National Development Strategy (the test being applied by MFED), and consequently feel that the National Development 44 Kiribati Social and Economic Report 2008

Strategy can become an imposition from above that undermines local initiative. Since 2005, the UNDP-funded Project on Strengthening Decentralised Governance in Kiribati has provided assistance to MISA in building up a framework for outer island development based on people’s needs, determined through consultative and participatory processes.7 Th e project is ambitious, and progress appears slow. Some of the areas addressed by the project include:

…preparing a development and ﬁ nancing framework for outer island development; reforming local governance practices; developing locally relevant participatory planning and monitoring processes; trialling and evaluating ICT [information and communication technology] services to outer islands; increasing awareness around civic and human rights issues to ensure better relations amongst religious groups, communities, and island councils; and giving due recognition to the needs of women and youth who have hitherto generally been denied a voice in local decision making processes.

Th e two urban councils—South Tarawa’s Teinainano Urban Council and the Betio Town Council—face problems and issues diﬀ erent to those faced by island councils. Th e area for which the two councils are responsible had a combined population of 40,311 in 2005 and a population density of 2,558/km2, which is approximately 20 times the national population density. Rapid population growth on South Tarawa and unplanned and uncontrolled urbanization are placing severe strains on limited land and other natural resources. Th ese strains have not been matched by investment in municipal services such as access roads, water supply, sanitation, and wastewater and solid waste disposal facilities. Although provision of these services fall within the broad mandates of the two urban councils as provided for in the Local Government Act No. 2 of 1984, they also are the responsibility of other government ministries and statutory bodies. A number of reports have identiﬁ ed gaps in the institutional capability and capacity of the two councils. In a 1994 ADB-funded study (ADB 1994), it was established that no skilled personnel were available in four areas of the seven key areas of the councils’ urban planning responsibilities and functions: urban planning strategy, urban planning policy, urban planning implementation, and waste policy management. Only one person with appropriate skills was available in one of the councils in the area of urban management.

7 UNDP. 2005. Strengthening Decentralised Governance in Kiribati. Available: http://db.undp.vrl2/com/projects/ view/370 Social Response to Development Risk 45

A 2007 study argued that, de facto, the role of the elected urban councils has been reduced to that of garbage collectors and local land planning boards (Australian Agency for International Development [AusAID], New Zealand’s International Aid & Development Agency [NZAID], and MISA 2007). Even in these two areas, service has not been effi cient. Local land planning boards exist in name only. Before 2007, garbage collection was ineffi cient and ineff ective because of lack of resources, facilities, and expertise; collection was erratic; and it was not uncommon to see uncollected domestic rubbish on roadsides for days. Service improved during 2007, however, with more regular garbage collection and the cleanup of a number of public open spaces. But the general observation about the defi cient role of the urban councils remains valid. Th e 2007 study pointed out that the urban councils as presently constituted are poorly organized and staff ed, with inadequate fi nancial resources to carry out a more active role in local development. Th ey are heavily dependent on the central Government for their key staff and capital development budgets. Th ey lack autonomy to make decisions about policy and strategic planning issues and, in some cases, about day-to-day matters. According to the 2007 study, because of defi cient capabilities and capacities, urban councils

…are no longer held responsible for urban management functions nor are they consulted in any meaningful way by the central agencies. Th is means that urban councils, in turn, are not consulting eﬀ ectively with their communities over local needs and priorities.

Th e challenge for thorough reform of urban local government has been accepted by the national Government and by donors, with New Zealand taking the lead, supported by Australia. As long as national and stakeholders and donors remain committed, substantial improvement in urban governance in South Tarawa and Kiritimati could occur within 3 or 4 years.

Environment and Climate Change

Environmental Management

Th e political economy of Kiribati and its natural environment are very closely interwoven. No government can aff ord to ignore the need for sound and eff ective policies for management of the interaction between people, organizations, and their physical surroundings. Almost everywhere in Kiribati is within sight or sound of the sea. Th e ecology of lagoons and surrounding reefs is deeply integrated 46 Kiribati Social and Economic Report 2008 into people’s lives, while the atoll geology, topography, and coralline soils support meager plant life and limited capacity for natural water storage. For purposes of environmental management, the entire land area of the country makes up a fragmented and far-fl ung coastal zone. In urban areas, organized disposal of solid waste demands space and funds—both scarce. A series of large, externally funded projects failed over several decades to produce a sustainable solution to the disposal of human waste. In South Tarawa, inadequacies of offi cial capacity and enforcement have meant that beach mining and other shoreline activities of the growing urban population threaten to undermine the fragile beach defenses protecting public and private investments. All aspects of environmental management are being made more diffi cult and more urgent by the impacts of climate change, particularly by rising sea levels and more frequent storms. Kiribati has tried for many years to come to grips with environmental management by establishing a technical department in the ministry dealing with lands and agriculture, the Ministry of Environment, Land and Agricultural Development (MELAD). Th e policy and operational synergies are obvious. Environment offi cials have struggled, however, with their multiple roles as advisers, regulators, and enforcers—nowhere more so than with beach mining, where the relevant legislation is administered jointly with MELAD. Serious erosion at several key points along the South Tarawa foreshore is resulting from licensed and unlicensed entrepreneurial hand-digging of beach sand and coral gravel. Sand and gravel is sold at the roadside for $5 for a 20-kilogram rice bag, 10 or 20 bags at a time, making a signifi cant income supplement for some urban households. Th e Government plans to replace this activity with an industrial-scale dredging operation to supply all South Tarawa’s sand and gravel needs, fi nanced by the European Union (EU). Th is will clearly require careful planning and skillful presentation to the urban community. Passage of the Environment (Amendment) Act, 2007, has given the Government more scope and powers to plan, manage, and regulate activities impacting the environment. Offi cials are well aware that they need to carry public opinion with them, and are devoting much eff ort to public consultation, use of the media, and visits to build rapport with communities. MELAD plans to expand on several fronts, adding specialist positions in climate change planning, waste management, and biodiversity and conservation; undertaking initiatives involving volunteers in wetlands improvement (e.g., planting mangroves at Temaiku); and coastal zone monitoring. At the same time, MELAD will need to keep abreast of the considerable ongoing regional and global activity in environmental management. Kiribati is a signatory to the United Nations (UN) Convention on Biodiversity, and actively tries to fulfi ll its commitments. Protected areas are Social Response to Development Risk 47

potentially powerful tools for preserving biodiversity, but they have to be eff ectively policed. Several such areas exist in Kiribati—lagoons and seabird breeding areas on Kiritimati, bird sanctuaries in the Gilbert Group, and a protected area for bonefi sh spawning aggregation in North Tarawa—but they are ineff ective due to the lack of local commitment and policing. A very important and high-profi le development that followed enactment of the 2007 Environment Act was the establishment by Kiribati of the Phoenix Islands Protected Area, covering the entire Phoenix Group. Th is development is discussed in more detail later in this report.

Response to Climate Change

Nature of the Problem Few countries are more vulnerable to the predictable eff ects of global climate change than Kiribati. Not many countries of a comparable size have done more to prepare themselves for it in terms of raising overall awareness, engaging local and overseas advisers, and participating in international consultations. Climate change manifested through higher sea levels and temperatures is all-encompassing, and in an atoll country there is no escaping it, nowhere to retreat to. Th e scientifi c basis for expecting adverse changes in sea levels and weather conditions is no longer in doubt. Th e prospects for outcomes at the more severe end of the predicted ranges appear to be strengthening as fresh evidence emerges from more comprehensive studies. Yet Kiribati today is scarcely any more prepared physically to deal with climate change than it was when the country became a party to the UN Framework Convention on Climate Change in 1995. Th ere have been dozens of meetings, much expert study, many reports and promises of help, much overseas travel, and many consultant engagements. Nonetheless, atoll communities and the social and economic assets of Kiribati are seemingly no better protected today against—or more correctly, adapted to—climate change than they were 10 years ago. It is worth considering why this is so, and what, if anything, can be done to make more eff ective preparations to deal with the comprehensive changes taking place in the climate. Part of the reason for an apparently minimal public response lies in the nature of climate change. Global warming is causing sea temperatures and water levels to rise, and is generating more severe weather events, all of which are impacting the atolls of Kiribati in ways that will in due course make living there signifi cantly more diffi cult and in some cases impracticable. But the change is taking place gradually, and daily and weekly weather still consists of the kind of physical phenomena familiar to Kiribati residents. Th ere have been very high tides, strong winds, storm surges, and long dry periods in the past, and these have 48 Kiribati Social and Economic Report 2008 caused saltwater inundation of freshwater lenses; damage to buildings, seawalls, and causeways; and parching of food crops for lack of rain. Weather events are not diff erent in kind from what has happened before, and although they may be becoming more frequent and severe, it takes time for this to become apparent. Meanwhile, there is no clear mark to show when a critical level of climate change has been reached or passed. People are adapting piecemeal to climate change all the time at the household, private business, and government level. Adaptation is gradually costing them more and more money, but there is no general or public sense of crisis. Th ere is only a widening acceptance that climate change is occurring, sea temperatures and levels appear to be rising, and that the eventual consequences for Kiribati are likely to be costly and far-reaching. And because climate change is so all-encompassing, it is diffi cult for people to know where to start in responding to it. So they simply do what they have always done to protect themselves. In fact, there is nothing extraordinary about the measures required to adapt to climate change—or climate proofi ng, as it is hopefully called. Th e atoll environment imposes obvious physical and technical constraints on feasibility, and many of the proposed adaptation measures would be needed to improve living standards even if the climate was not changing. Recognition of this usefully led to the “no regrets” economic appraisal approach to investment in adaptation, whereby investments are undertaken that would be justifi ed with or without climate change. Th e diff erence is that these measures are required with more urgency and often to a greater degree than if the climate was not changing. Included are better management and protection of freshwater lenses; safe storage and distribution systems and pricing arrangements that conserve drinking water; stronger coastal zone management and policing to deter beach mining, mangrove cutting, and the building of seawalls that erode neighboring property; more eff ective design and construction of coastal defense works around valuable private and public installations; and arrangements to help people move for refuge—or permanently— to locations where projected rises in sea level are not a danger. A contributing factor to the lack up to now of operational activities for adaptation to climate change is the lengthy and diff use nature of the processes required to inform and engage households and communities in the adaptation process. Anywhere this takes time, and in the scattered nation of Kiribati it has taken many years. Some national fi gures have been actively engaged in raising awareness of climate change since the mid-1990s, but the Government as a whole has only recently embraced the campaign. A signifi cant level of national budget resources consequently has not been devoted to climate adaptation. Th e professional and fi nancial capacities of the Social Response to Development Risk 49

key government departments suited for the purpose—particularly the Ministry of Public Works and Utilities (including its Public Utilities Board) and MELAD— are in any case limited. Further, political and offi cial attention tends to turn to climate proofi ng only after substantial loss or damage from a disastrous event. And like other developing countries, Kiribati considered that climate change was being caused by industrialized nations and that they should take the lead in providing resources to deal with the problem. In the course of international debate and on the basis of overpowering scientifi c evidence, this view has prevailed. Kiribati does not have to deal with climate change on its own; the international community has acknowledged its responsibility for global warming and its obligation to help poorer countries adapt.

National Policy and Strategy In August 2005, the Government deﬁ ned its policy and strategy on adaptation to climate change in two linked statements (Oﬃ ce of Te Beretitenti 2005b). Th e following are key excerpts:

Extract from the Kiribati Policy Statement on Climate Change

As Kiribati cannot escape climate change it must adapt to it. Th e adaptation process needs to give people the best possible chance of living decent lives during and beyond the period of climate change now foreseen. As the impacts of climate change reach into all aspects of life in Kiribati, broad public consultation and participation in planning and implementation are needed for sustainable responses. Many departments of government are involved, requiring both central policy co-ordination and clear delegation of responsibility for action. And as the precise speed and extent of future climate change is unknowable, adaptive responses themselves need to be risk- minimising, ﬂ exible and progressive.

Extract from the Kiribati Climate Change Adaptation (CCA) Strategy

Adaptation to climate change is in the ﬁ rst place an intellectual process. It involves people and organisations providing, receiving, interpreting and understanding information about climate variability and change and the resulting impacts and adjusting their behaviour in the light of this information so as to be better able to deal with climatic trends and events. 50 Kiribati Social and Economic Report 2008

Flows of information and adjustment of behaviour occur at individual, household, community, government and nongovernment institutional and national levels. Th e information comes from various sources through formal or informal channels.

Behavioural changes may relate to the way existing resources and assets are used, or involve their relocation or modifi cation, or require the acquisition of new and diff erent resources and assets. Th e way people and communities behave towards each other may also change according to how they expect their resources and assets to be aff ected by climate change.

To enable actions in response to climate change to be planned, assumptions must be made about the nature and extent of the change. As events in Kiribati and globally provide new data, trends will be monitored, initial assumptions modiﬁ ed and plans adjusted. Based on recent work by the Government’s Climate Change Study Team the initial planning assumptions made now for Tarawa are as follows:

Indicator Relative to the Year 2000 2025 2050 2100 Mean sea +6 +14 +39 level rise (cm) (+3 to +10) (+6 to +26) (+12 to +83) Annual mean air +0.4 +1.0 +2.3 temperature (°C) (+0.3 to +0.5) (+0.8 to +1.4) (+1.3 to +3.5) Annual mean +3 +7 +15 rainfall (%) (+1 to +7) (+2 to +17) (+4 to +46) C = centigrade, cm = centimeter, % = percent.

Source: Government of Kiribati Climate Change Study Team.

Climate change will also aff ect the El Niño (ENSO) cycle which in turn may aff ect the variability of temperature, rainfall, and sea level even further. Such changes in variability could have large eff ects, for instance on the occurrence and intensity of droughts. While the current climate models cannot precisely project these risks, Kiribati can prepare for them by improving its resilience to the current projected variability and change. Social Response to Development Risk 51

Th e CCA strategy therefore aims to strengthen Kiribati’s ability to handle climate change by action under eight headings:

(a) Integration of CCA into national planning and institutional capacity; (b) Use of external ﬁ nancial and technical assistance; (c) Population and resettlement; (d) Governance and services; (e) Freshwater resources and supply systems; (f) Coastal structures, land uses, and agricultural practices; (g) Marine resources; and (h) Survivability and self-reliance.

Th e full versions of these two statements deﬁ ne Kiribati’s position and intentions on adaptation to climate change in some detail. Th eir issue in mid- 2005 enabled planning to proceed on a coherent basis. Th e institutional structure for overseeing climate change adaptation policy and strategy that evolved in 2003– 2005 is illustrated in the Kiribati Adaptation Programme (KAP) II implementation plan shown in Figure 5. Th e National Adaptation Steering Committee comprises policy-level planning and administrative oﬃ cials and representatives of business and civil society.

Figure 5: Government of Kiribati Structure for Overseeing Climate Change Adaptation Policy

Cabinet

External Office ofTe Beretitenti (OB) reporting

Line Ministries: NASC (MELAD, MFED MISA, MPWU, MFMRD, MCTD) CCST

CCST = Climate Change Study Team; MCTTD = Ministry of Communications, Transport and Tourism Development; MELAD = Ministry of Environment, Land and Agricultural Development; MFED = Ministry of Finance and Economic Development; MFMRD = Ministry of Fisheries and Marine Resources Development; MISA = Ministry of Internal and Social Aﬀ airs; MPWU = Ministry of Public Works and Utilities; NASC = National Adaptation Steering Committee; Te Beretitenti = Th e President.

Source: Kiribati Adaptation Programme II. 52 Kiribati Social and Economic Report 2008

It was particularly important to achieve planning coherence by mid-2005 because of increasing activity in two separately conceived but closely related areas of work on climate change adaptation, namely the National Adaptation Programme of Action (NAPA) and KAP.

Coexistence and Commonalities of the National Adaptation Programme of Action and the Kiribati Adaptation Programme Th e Global Environment Facility (GEF) was set up under the UN Framework Convention on Climate Change to receive, concentrate, and distribute fi nancial assistance for the purpose of helping developing countries adapt to climate change. Th e aim is to work through established international and regional institutions to support national adaptation eff orts. Th e process of making these intentions operational through international conferences was slow, and it was not until 2003 that a funding mechanism for the NAPAs was agreed with UNDP. Preparation of the NAPA for Kiribati began in mid-2004 within the Environmental Division of the Ministry of Environment, Land and Agricultural Development (MELAD), under the guidance of the Climate Change Study Team. MELAD remained responsible for development of NAPA through preparation, completion, and publication early in 2007. Th e estimated cost of program activities over a 3-year period is just under $16 million, of which about 70% is to be funded externally and the balance funded by the Government of Kiribati. NAPA would enter its implementation phase through incorporation of the fi rst tranche of its activities in the national budget and ministry operational plans. Kiribati had been identifi ed in a 2000 World Bank study as so obviously in danger from climate change that there was no need to wait for the global machinery to be set up before starting to plan a response (World Bank 2000). Th e World Bank and the Government of Kiribati—represented by the Ministry of Finance and Economic Development (MFED) as the country focal point for World Bank projects—agreed to carry out planning under KAP Phase I, supported by a project preparation grant from Japan. Work began with national consultations in late 2003, undertaken jointly by MFED staff and KAP I consultants working with the embryonic MELAD-based NAPA team. KAP planning continued through 2004 and 2005, resulting at the end of 2005 with KAP Phase II, a 3-year program to build community participation and national capacity for adapting to climate change. Th e $8.7 million KAP II was approved by the World Bank and the Government of Kiribati in February 2006. In the following months, external funding of $5.7 million was secured from GEF, AusAID, and NZAID, to be channeled through a World Bank–administered fund. Th e $3 million balance is covered by a services-in-kind counterpart contribution Social Response to Development Risk 53 from the Government of Kiribati. After initial delays, KAP II became operational in late-2006 and is currently being implemented. Kiribati thus acquired a NAPA with the help of UNDP, and KAP II with the help of the World Bank supported by funds from GEF, AusAID, and NZAID. Th e objectives and content of KAP II and NAPA are practically identical. Both aim to build understanding and capacity at household, community, island, and national level to deal with the already occurring impacts of climate change, and to develop institutional capacities suffi cient to undertake more far-reaching adaptations. Th e risk of confusion, overlap, and confl ict between NAPA and KAP II was grasped at an early stage by staff working on the two programs. Th e Government had committed to both projects with the aim of maximizing access to useful external funding and technical assistance. Steps were therefore taken formally and informally within the Government to ensure that the two programs would as far as possible march in step and conform to the same overall plan. Development of the national climate change adaptation policy and strategy in 2005, and designation of climate change as a strategic risk to be overseen by the Offi ce of Te Beretitenti (Offi ce of the President), were key moves in this direction. KAP II attracted implementation funding fi rst and is now operational because of the greater concentration of resources that went into its preparation, and the work of the World Bank in putting together GEF–AusAID–NZAID fi nancing package. Th e NAPA document recognizes the risk that it “could be construed by aid agencies as being subsumed under KAP II” (Offi ce of Te Beretitenti 2005a). It consequently suggests that a distinction be drawn between NAPA as a rapid response to existing coastal protection needs, and KAP II as a longer-term program to build capacity to design better coastal protection. Th is is straining reason to justify the existence of two projects. Th e continued separate coexistence of NAPA and KAP II does not make economic or political sense. Th ey are essentially parts of the same strategically important activity. Merger or consolidation is required before competition for funding of similar subactivities begins to cause problems for donors and within the national budget.

Future Arrangements for Management of Climate Change Adaptation Th e midterm review of KAP II, expected in mid-2008, off ers an opportunity to consolidate management arrangements for climate change adaptation, bringing KAP II and NAPA clearly into the same planning and management structure. Th e terms of reference of the review could be drawn so as to guide the smooth and effi cient merger of NAPA and KAP II. KAP II activities consist largely of raising awareness, developing designs and techniques, and generally building capacity. A KAP III is assumed to follow, with a much larger component for physical climate proofi ng. Th is component could 54 Kiribati Social and Economic Report 2008 conveniently comprise an operational NAPA, using fi nance and advisory services organized along KAP II lines and executed through ministry operational plans and the Public Utilities Board business plan. Th is approach is presently envisaged for both KAP II and NAPA. It seems highly likely that donors would support such an approach, provided the midterm review fi nds KAP II is delivering satisfactory results. Assuming the Government proceeds with establishment of the strategic risk and disaster coordination unit (or equivalent) in the Offi ce of the President, a structure is required that unifi es the management, fi nancial administration, and work programs of NAPA and KAP. Th e structure should have the unifi ed activity reporting to the Offi ce of the President as KAP II now does, and preserve the close links with MELAD’s Environment Division (through the machinery and close coordination of the National Adaptation Steering Committee and the Climate Change Study Team). Th ese close links have enabled NAPA and KAP II to thus far avoid donor—principally GEF—discomfort. As NAPA gets closer to undertaking operational activities, it will be increasingly diffi cult to explain and sustain the two-program structure. Action through the midterm review of KAP II to plan an orderly consolidation of KAP II and NAPA seems appropriate.

Education and Training

Education

Policy and Budget Th e state nominally provides free and compulsory education for students until they are 12 years of age, or to the end of Class 6, and free education to Form 3.8 A total of 27,698 students were reported enrolled in 130 government and church schools throughout Kiribati in 2006, taught by 1,318 teachers. Th e policy framework for the supply of appropriately trained teachers, suffi cient and eff ective teaching materials, and suitable infrastructure is still far from fully developed. In an important step forward, great improvements have been made recently in monitoring and reporting the status and performance of the system through the establishment and use of the Kiribati Educational Management Information System (KEMIS) (Ministry of Education, Youth and Sports [MEYS] 2006). MEYS was allocated 26% of the Government recurrent budget in 2006 and 24% in 2007, refl ecting a substantial but reduced government commitment to

8 Forms 1 to 6 are secondary school classes, with Form 1 being the ﬁ rst year and Form 6 being the last year. Social Response to Development Risk 55 education. In the 2006 budget, the allocation per student was $363 for primary school students and $1,274 for secondary school students. Th e secondary school allocation was augmented by fees paid by parents for Form 10, 11, and 12 students. Senior secondary students incur greater costs because of the requirement for students to board, which is generally necessary because of the distance of schools from student homes. However, the lopsided allocation at the expense of primary schools is reﬂ ected in the poor conditions and resources of primary schools. Nonetheless, investment in primary education provides the greatest returns in terms of development, and consideration could be given to increasing investment in primary education. Churches play an important role in the provision of education at the secondary level. Th ey do this at relatively little cost to government, although there has been an increase in the amount of money allocated to church schools since 2002. Th ey now receive funding for additional teachers, and funding for boarders has increased from $100 per term to $200 per term. Th e balance of the cost of education for senior secondary students at church schools is met by their families. In 2006, church schools educated approximately 73% of senior secondary students and received 14% of the education budget, while government schools educated approximately 27% of senior secondary students and received approximately 27% of the education budget (MEYS 2006 and MFED 2006) (Figure 6).

Figure 6: Percentage of Budget Allocations and Students Attending Church and Government Senior Secondary Schools in Kiribati, 2006

80 70 60

50 40 30 Percent (%) 20 10 0 Church Government

Students Budget

Source: Ministry of Education, Youth and Sports (2006) and Ministry of Finance and Economic Development Budget (2006). 56 Kiribati Social and Economic Report 2008

The System Primary, junior secondary school (JSS), and senior secondary school (SSS) education is provided by the Government through MEYS to most students.9 Th e churches are essential providers of senior secondary education, however, with 10 high schools—two of which are “central schools” serving several islands. Th ey are registered as SSSs and enroll students from Form 1 to Form 6. In response to community requests, the Kiribati Protestant Church resumed provision of JSS Form 1. Th ere is also a secondary vocational school in Abemama in the Northern Gilberts operated by the Kiribati Protestant Church that is not as yet registered and, thus, does not receive government funds. Preschooling also is facilitated and partly supported by the Catholic and Protestant churches at the village level, but the salaries of preschool teachers are paid by the villages. Th e number of students at each level in primary and secondary schools in 2003–2006 is shown in Table 1. Enrollment during the period increased by about 500, or 1.9%, reaching a total of about 27,700 in 2006. Th is increase amounts to between one third and one half of the population growth rate, and represents a virtual stagnation of enrollment. Th ere has been a noticeable decline in enrollment at the JSS level (9%), particularly in Tarawa. Th is apparently reﬂ ects disciplinary problems and a growing sense that JSS education is not meeting the needs of young people. Th e proportion of male and female students in Kiribati schools in 2007 may be seen in Table 2. Th e ratio of males to females has become more balanced in recent years, especially at the secondary level. However, there are still more females at both secondary levels. In 2006, Kiribati achieved a net enrollment ratio of 96% in primary schools, with 90% of primary school entrants having attended early childhood education programs. Th is net enrollment ratio compared to a 104% gross enrollment ratio at the primary level, indicating a number of over-age students repeating classes. Th e average age of students at various levels is not available. Given the modest allocation of oﬃ cial resources, the remoteness of the outer islands, and the unreliability of infrastructure for transport and communications, this enrollment ratio is a laudable achievement. Th e net intake ratio in 2006—i.e., the percentage of 6 year olds that started school in class one—was 94%. Despite the Government’s commitment to improving education, net enrollment at the JSS level dropped to 79% in 2006 after increasing to 89% in 2003. Communities are concerned about the functioning of JSSs, especially in South Tarawa. Reports of inappropriate student and teacher behavior and poor

9 Information and data cited in this section are derived from MEYS (2003, 2005, and 2006) unless otherwise noted. Social Response to Development Risk 57 (%) LevelPrimaryJunior secondary schoolSenior secondary school 52 54 Female 49 48 Male 46 51 2003 2004 2005 2006 Table 2: Table 2006 Level, by School Enrollment in Kiribati Gender Balance (2006). and Sports Youth Ministry of Education, Source: – – – 1.5 (1.4) 0.1 (0.3) 2.2 1.0 1.2 0.5 0.9 LevelPrimaryJSS FemaleSSS 7,636 MaleTotal 8,162Annual Total 4,055change (%) 15,798 Female 1,962 13,653 3,796 7,739 Male 13,517 1,559 7,851 7,872 27,170 Total 3,521 3,652 13,858 15,611 Female 2,467 13,334 3,561 Male 7,966 27,192 1,901 7,213 Total 8,167 13,822 4,368 Female 3,519 13,642 16,133 2,337 Male 27,464 3,502 7,922 13,992 1,973 Total 7,021 8,317 13,706 4,310 16,239 3,755 27,698 2,315 3,408 1,981 7,163 4,296 Table 1: Table 2003–2006 Level, Schools by in Kiribati Enrolled Number of Students JSS = junior secondary– = data not available, school, SSS = senior secondary value. school, ( ) = negative (2003, 2005, and 2006). and Sports Youth Ministry of Education, Source: 58 Kiribati Social and Economic Report 2008

Figure 7: Proportion of Qualifi ed Teachers in Kiribati Schools by Level, 2003–2006

1.2

1.0

0.8

0.6

0.4 Share of Total Number Teachers 0.2

0 2003 2004 2005 2006

Primary JSS CS SSS

CS = central school (combining primary and lower secondary), JSS = junior secondary school, SSS = senior secondary school.

Source: Ministry of Education, Youth and Sports (2003, 2004, and 2006).

standards of educational performance reinforce these concerns. Th ese problems also may be refl ected in the recent decrease in JSS enrollment ratios as well as in some poor results for Junior Secondary Certifi cate examinations. Th e JSS curriculum and system is in need of evaluation and additional support if Kiribati is to produce young, literate, and numerate adults with an adequate level of English and other skills for work and travel abroad. Community concern about the performance of JSS students resulted in some outer island communities providing support to help students improve. An example was community support at exam times, with students studying together in the maneaba. Th is provided a positive model which was widely reported and which other communities could emulate. Th e net enrollment ratio in SSSs rose from 31% to 34% in 2004. Th is occurred mainly in church schools, and refl ects the importance of education to fee-paying families. Th e average ratio of primary teachers to students in 2006 was 1:26. Overall, 63.0% of teachers in Kiribati are female. Th ere are signifi cantly more female Social Response to Development Risk 59

Figure 8: Proportion of Certifi ed Teachers in Kiribati Schools by Level, 2003–2006

1.0

0.9

0.8

0.7

0.6

0.5

0.4

0.3

Share of Total Number Teachers 0.2

0.1

0.0 2003 2004 2005 2006

Primary JSS CS SSS

CS = central school (combining primary and lower secondary), JSS = junior secondary school, SSS = senior secondary school.

Source: Ministry of Education, Youth and Sports (2003, 2005, and 2006). teachers at the primary level (78.6%) than at the senior secondary level (40.6%). Th e percentage of qualifi ed teachers10 in primary and JSSs has recently shown a decline (Figure 7). Th is may be the result of teacher migration or because teachers not yet fully qualifi ed have been appointed, especially at the JSS level. Th e percentage of certifi ed teachers (those holding at least a 2-year certifi cate) has shown a similar declining trend (Figure 8). Many of the primary and JSSs are located on outer islands where checking for certifi cation takes place infrequently. Th is may account for the apparently falling level of certifi cation at those levels.

Infrastructure Th e Kiribati Infrastructure Standards for Primary Schools was revised and extended in 2006. KEMIS collected and recorded information on infrastructure across all school levels. Th is collated information now provides valuable assistance to managers in MEYS in planning and allocating resources.

10 Qualiﬁ ed teachers in Kiribati have successfully completed Form 5 for primary teachers and Form 7 for junior and senior secondary teachers. 60 Kiribati Social and Economic Report 2008

Th e information provided about primary school infrastructure, in particular, highlights multiple shortcomings in school infrastructure. Four out of fi ve schools are reported to have an adequate number of classrooms and a maneaba (not required in small schools), but in most cases the condition of these buildings is unsatisfactory. About 68% of schools have an offi ce for the head teacher, but only one in fi ve of these are of the required size and are in good condition. A third of all schools have staff rooms (66% of these are adequate in size) and 38% of schools have libraries, but only 1% of the latter are of the recommended size. Forty-three percent of schools have storerooms. Most tellingly, only 20% of students and 2% of teachers are provided with adequate school furniture (tables, chairs, desks, cupboards, and blackboards). Raising literacy and numeracy standards in these conditions is a daunting task. Water supply and sanitation in primary schools are particularly poor. Only 2.2% of schools have a water supply, and of these only 10% are deemed adequate. Very few schools supplied details of water tank capacity, but where details were supplied, only 1.7% of the tanks were deemed adequate. For sanitation, 3% of boys, 2% of girls, and 48% of staff in primary schools have adequate facilities. Th is information confi rmed the statements of communities repeated for many years, indicating a crisis in infrastructure provision for primary schools. It should be noted that this information was collected according to standards developed by I-Kiribati, which were considered suitable for Kiribati. Given the Government’s poor record of funding and carrying out maintenance, it is far from clear how this problem will be resolved. Investment in school infrastructure is essential to improving morale and performance.

Teacher Training Th e Kiribati Teachers’ College (KTC) has a principal and a staﬀ of about 20 lecturers. In 2007, 123 students were enrolled in Primary, Primary Upgrading, JSS Upgrading, and JSS Retraining courses to prepare them for teaching. Th e Primary Diploma, which is earned by most KTC graduates, is a 3-year course. Th e upgrading and retraining courses, which are regarded as in-service courses, are 12-month courses. Eighteen teachers were expected to graduate from KTC in 2007. An important issue for KTC and the school system is the decline in English language skills. KTC was able to recruit only 18 of a possible 20 student teachers in 2007 because of failures by prospective entrants of the English language test. KTC has just undertaken a review of its curriculum with a view to providing more relevant content, expanded English content, and up-to-date teaching methodologies. Th e curriculum is more integrated and based on a consistent credit point system, and should improve the preparation and English language skills of teachers. Social Response to Development Risk 61

National Development Strategies, 2003–2007 Little overall progress has been seen in implementing the objectives of the National Development Strategies for education since 2003. Th e levels of literacy and English language skills seem to have decreased. Th is is evidenced by the higher percentage of students assessed as “at risk” in Class 6 than in Class 4 in the results for the Standard Assessment of Kiribati, and by the high level of failures in English by entry-level applicants for KTC and the Norwegian Cruise Line. School curriculum remains focused on academic achievement and does not prepare students for either formal or informal employment. Th e Kiribati Institute of Technology has been unable to keep pace with expected employment opportunities, especially overseas. Th e institute has not extended its outreach to the outer islands, and access to informal education by women and youth has not increased. Th e slow progress can be attributed in large part to the constraints on managers in MEYS to actively manage the performance of their staﬀ . Th e operation of informal rules in the public sector (ADB 2002, 87) has allowed some education oﬃ cers to maintain their positions while not maintaining reasonable performance standards. Additional constraints, such as the large distances between MEYS headquarters and most schools in the face of poor communication and transport systems also have contributed to the lack of implementation.

Training

Kiribati has several post–secondary education institutions for training and further education, including the Police Training College, the National College of Nursing, KTC, and the Agricultural Training College. Graduates of these institutions will automatically move into government positions. Additionally, the institutions (described below) provide qualiﬁ cations that prepare students for employment in Kiribati and overseas.

Kiribati Institute of Technology (KIT) KIT off ers vocational training and education, but is currently struggling to provide graduates with skills and qualifi cations that meet current employer standards, especially overseas (discussed later in this chapter). KIT benefi ted from the EU-funded Kiribati Training Program II, which supported the construction and equipping of a modern workshop that caters to mechanical and electronic engineers, electricians, and carpenters. Under the same program, learning centers for vocational and informal training were to be constructed and operational in 2004 on the outer islands, but these plans did not come to fruition. KIT operations are currently under review, which should lead to the development of a National Qualifi cations Framework—relevant to overseas standards—and a 62 Kiribati Social and Economic Report 2008 mechanism for establishment of fl exible staffi ng conditions, qualifi cations, and performance requirements.

Maritime Training Centre (MTC) MTC prepares its graduates for placement as crew on German merchant ships (through South Pacifi c Marine Services [SPMS]), or for placement as hospitality and deck or engine room crew on Norwegian Cruise Line (NCL) ships (through Shipping Agencies of Kiribati). Th e Centre is run like a ship, with well-structured training. SPMS has consistently helped MTC maintain standards by fi nancing MTC’s captain superintendent and its chief engineer. SPMS also provides practical onboard training for the MTC graduates it recruits. MTC has two intakes each year of 75 young men to train as seafarers, and 10–15 young women yearly to train as hospitality workers on cruise ships. Seafarer recruits are required to be between 18 and 23 years old, with selection based on physical fi tness and a written test. Student intakes alternate between recruits from Tarawa and the outer islands. Outer islands candidates to take the written and fi tness tests are chosen by the unimwane. Th e economic return to Kiribati from MTC investment and operating costs—in the form of remittances from employed seafarers—is very high. However, MTC facilities are up to 50 years old. Its infrastructure and equipment urgently need upgrading and expansion. MTC equipment is outdated and does not correspond to equipment seafarers will use on the job. Government budget allocations have been insuffi cient to maintain MTC infrastructure and staff resources. Because MTC runs well as an institution, the Government appears to conclude that close attention to MTC development and sustainability is not required. Greater government attention to MTC is needed in the form of effi cient administrative support and additional budget support for MTC operations, English language training, maintenance, and transport and boarding facilities. NZAID has committed to upgrading MTC infrastructure over a 3-year period. Greater attention must be devoted to the quality of trainee recruits. Discipline at MTC has been a problem, usually related to the consumption of alcohol. An increasing number of recruits are failing selection and completion because they fail medical tests. Health problems include high blood pressure, diabetes, obesity, and testing positive for hepatitis B, the most common cause for failure of medical tests. No recruits have tested positive for HIV/AIDS for some years. Health and discipline problems can reduce a group of 75 recruits to 50 or 55. SPMS is concerned that health tests conducted at Tungaru hospital in Tarawa do not provide reliable results. Th e level of English language conversation skills has emerged as an additional problem. When about 700 young women applied for the last intake of NCL, more than half failed the English conversation test. Social Response to Development Risk 63

Seafarers who graduate are fi t, disciplined, and expected to cope with the demands of months of continuous work at sea. However, attention to the performance of graduates to ensure their competitiveness in the market and the availability of jobs is needed. Th is extremely important source of national income may be at risk because of inappropriate or unlawful behavior of a small number of I-Kiribati seafarers, bringing disrepute to the entire maritime employment program. Life aboard merchant ships—which spend as little time as possible in port—can be monotonous. Th e need for seafarers to comply with strict rules and obey orders means that the scope of onboard relaxation is limited. Alcohol-related problems are usually the cause of seafarers losing their jobs. Some seafarers and hospitality crew have been apprehended for crimes involving drugs, dismissed, and punished in other countries. Such behavior places the reputation of Kiribati seafarers and crews at risk. Health and educational issues also have emerged as problems aff ecting the performance of seafarers. SPMS staff has removed about 500 sailors from the “available” list in the recent past for a variety of reasons, generally related to health and discipline. When the 3-year NZAID infrastructure upgrading project is completed, MTC will be able to accommodate an intake of 200 male recruits each year. For modest additional cost, current expansion plans could be augmented and MTC’s intake and output increased further. Th e Government can support increased numbers of quality graduates from MTC by investing in infrastructure, staff , and operations, but donor assistance has become an essential part of MTC funding. Onboard training at MTC currently provided by SPMS will not be feasible in a wider employment market. Other arrangements will be needed. Subject to a detailed feasibility study, new arrangements could include acquisition by MTC of a vessel suitable for onboard training while providing interisland or regional commercial services to defray costs.

Fisheries Training Centre (FTC) FTC prepares Kiribati seafarers for the tuna fi shing industry. Recruit intake each year for the 8-month course numbers 75. Applicants with a Form 3 secondary school certifi cate undergo written, fi tness, and medical tests. Th e school has its own training ship, and trainees learn both pole and line and longline fi shing techniques. FTC recently lost its Japanese language instructor as a result of fi nancial problems encountered by the Japanese Tuna Company. Th ese problems also have implications for the employment of FTC’s graduate seamen. Morale at FTC has suff ered as the number of graduates currently exceeds employment opportunities. Th is situation may improve, however, if Kiribati’s Department of Labour is successful with its eff orts to fi nd additional employment opportunities. 64 Kiribati Social and Economic Report 2008

Australian Pacifi c Technical College (APTC) APTC is an initiative of the Government of Australia for citizens of Pacifi c island countries to gain greater access to the Australian job market. APTC is establishing campuses across the Pacifi c off ering automotive, manufacturing, construction, electrical, and tourism and hospitality courses. Students who successfully complete the courses obtain a Technical Certifi cate 3 or 4 and can return to their home country or use the certifi cate to enhance their eligibility for migration to Australia. Th e Government of Kiribati wants KIT to serve as a pathway to APTC. Th e concern is that the current curriculum and training standards of KIT will not be adequate to produce graduates who meet the criteria for APTC entry.

University of the South Pacifi c (USP) Th e USP campus in Kiribati is located in a rapidly developing area of South Tarawa. Th e campus currently off ers a foundation year course, which qualifi es those who pass to undertake a degree course at the USP campus in the Fiji Islands or Vanuatu. In 2007, 761 students (489 females and 272 males) enrolled in this foundation year course. In addition, Kiribati Protestant Church Form 7 students and some Catholic Church year 7 students follow the USP course of foundation studies. Th e foundation year pass rate is about 68%. Expansion of the USP Kiribati campus is planned, to be undertaken in three phases. Existing buildings will be renovated and extended, and new buildings will be constructed on the present site and on adjacent land east of the present site which the Government of Kiribati has allocated. Campus expansion will increase teaching and learning space fourfold with the addition of new classrooms and science and computer labs, and will augment offi ce space for administration and academic staff . Th e new campus also will include a new building to house a center for the study of sustainable development in atolls and small island states, which the Government has asked USP to set up. Th e total cost of the new campus is expected to be $6.5 million. Th e Government has indicated willingness to contribute $2 million, with USP seeking the balance from donors.

Scholarships for overseas education and training Scholarships are provided by AusAID; Taipei,China; Commonwealth Secretariat; Cuba; Japan International Cooperation Agency; Government of Kiribati; NZAID; and World Health Organization (WHO). Th ese scholarships fund student attendance at APTC, tertiary institutions in Australia and New Zealand, medical studies in Cuba, the Fiji Institute of Technology, institutions in Kiribati, USP, and various short-term international training courses and seminars. AusAID and NZAID have awarded more than 287 scholarships for formal education since 2000. Th e number of scholarships awarded under AusAID and NZAID regional Social Response to Development Risk 65

Table 3: Summary of AusAID and NZAID Scholarships Awarded to Kiribati Students, 2000–2007 (Number)

Completed Agency Female Male Total or Ongoing Terminated Expired Deferred NZAID 71 80 151 98 44 11 0 AusAID 85 82 167 151 28 0 1 Total 156 162 318 249 72 11 1 AusAID = Australian Agency for International Development, NZAID = New Zealand’s International Aid & Development Agency.

Source: AusAID and NZAID databases. development scholarships and in New Zealand development scholarships is shown in Table 3. Of the 249 scholarships successfully completed or ongoing, at least 34 are in business, accounting, commerce, and economics; 15 are in computers; 27 are in the legal area, including a master’s degree in international law; 25 are bachelor of medicine and surgery degrees for the training of doctors; 5 are degrees in dental surgery; 10 are civil engineering awards, including 3 degrees; 4 are degrees in tourism, including 1 master’s degree; 2 are in architecture; and 26 are in education. Th e number of scholarships successfully completed or currently being completed appears to be well on track to meet the needs of Kiribati. Th ere may be more medical doctors and lawyers than required by public demand, while more graduates are needed in some areas, such as accounting. A tracer study of scholarship awardees would provide valuable information. A review of the post- education career and residence choices of awardees could be useful given the frequent critical comments by national and foreign observers about the lack of qualiﬁ ed people in public service.

In-country training Development partners, nongovernment organizations (NGOs), and the Government of Kiribati provide in-country training as part of their various projects. In addition, some ministries possess training funds, and the recently developed National Strategic Human Resource Development Plan provides priorities for in-country training for the public and private sectors, including public enterprises and NGOs.

Planning Human Resource Development

Th e National Sustainable Human Resources Development Plan 2008–2010 (Public Service Offi ce [PSO] 2007) expands and rolls forward the 2007–2009 plan. Priority needs specifi ed in the plan were identifi ed by various ministries. 66 Kiribati Social and Economic Report 2008

In 2007, PSO worked with an adviser to

(i) review and gain approval of the In-Service Academic Award Bond, which would require public servants awarded scholarships to return to the public service; (ii) review and gain approval of Section K (Human Resources Development) of the National Conditions of Service; and (iii) develop a policy and procedures manual for human resources development activities.

Th ese will provide essential support for implementation of the 2008–2010 plan. NGO and private sector needs (as identifi ed by responsible ministries) are for the fi rst time included in the plan. Priority needs spelled out in the plan are intended to provide information to training providers, donors, and the Pre- service Scholarship Board for development of training within Kiribati, and for allocation of opportunities to school leavers and employees in the public, private, and NGO sectors. However, inclusion of a priority in the plan does not confi rm funding for the associated activity. Where funding is needed, it is to be sought according to the order of plan priorities. Implementation of the plan should see the capabilities of public, private, and NGO sectors increase in an ordered and comprehensive manner, improving services delivery. It will take some time for the priorities of the plan to be implemented. As noted in the plan, “…of the ten priorities…to date (from 2007) none have started…” (PSO 2007, 8) but many are under development. Th e seemingly slow start should not discourage implementation of the plan, but should be seen as a refl ection of the time implementation can take in the Kiribati public sector environment. Th is is particularly appropriate in this case because, as noted in the plan:

…the focus for these programs has been to develop proposals which will run in-country, but be linked to an accredited overseas institution so that those who successfully complete the training will have a qualiﬁ cation that is portable and recognised both in Kiribati and internationally.

Th e National Sustainable Human Resources Development Plan 2008– 2010 provides a comprehensive needs analysis of the Kiribati workforce that is linked to the National Development Strategies. It has improved the ability of the Government to target its resources for development of school leavers and the workforce at the national level. At the same time, the plan recognizes the importance of the workforce gaining qualiﬁ cations that can be used overseas. Social Response to Development Risk 67

Identifying and Managing Risks

Th e principal issues in education are the curriculum, which is inappropriate and does not prepare school leavers for productive and satisfying livelihoods; and the falling standard of education provision at both school and post-school levels, particularly in English language instruction. A full-scale, comprehensive overhaul of the school curriculum is required. Curriculum purpose and content need to be reformulated to ensure that students are prepared for participation in the world of work—whether as artisans, fi shers, subsistence farmers, casual workers, or government employees. If not done, school leavers will not be prepared for a productive and satisfying livelihood. In recent statements, the Government has stressed the importance of overseas work for I-Kiribati. A minimum level of English skills is a prerequisite for overseas employment and for eff ective communication with the world outside Kiribati. Inadequate English skills are preventing many I-Kiribati from accessing overseas job opportunities. General education standards are falling. Recent results of student monitoring show that 70% of them are at risk of illiteracy. If English and academic standards do not improve, I-Kiribati are not only likely to lose overseas job opportunities, they also will have diffi culty managing their aff airs in a world where eff ective international communication, negotiation, and decision making are essential. Th e poor state of infrastructure in the majority of schools, especially primary schools, provides an unhealthy environment for learning and contributes to the low morale of teachers and students. If neglected schools are not improved, they risk failure as centers of learning as well as contributing to health problems and the continuing decline of morale. MEYS is well aware of the problems facing education. A strategic plan to address them has been developed with clear priorities. Education follows national planning and monitoring procedures, which should see implementation of the plan occur. Th e main goals of the plan are to

(i) deliver a high quality, coherent, and relevant curriculum; (ii) provide a good learning environment for students; (iii) develop a competent and eﬀ ective workforce; (iv) strengthen the Ministry’s policy framework and planning systems; (v) strengthen the legislative and regulatory framework for managing the school system; and (vi) consolidate partnerships with stakeholders. 68 Kiribati Social and Economic Report 2008

Current leadership of MEYS has the capacity to lead the changes required, but ﬁ nancial and technical support from development partners will be needed. Such support will be required for infrastructure, in particular, as well as in curriculum review, teacher training, and materials support. Th e Government presently does not have the capacity to deliver the volume and quality of education and training needed by the young people of Kiribati. An education summit in early 2008 is expected to provide the opportunity to discuss and gain support for the ministry’s identiﬁ cation of problems and initiatives to address them. Th e support of key stakeholders at this summit is essential if education in Kiribati is to improve. Foremost among needed initiatives is development of a national curriculum framework that takes into account literacy requirements—for both Kiribati and English language skills—and the need for graduates to have the skills to participate in both the formal and subsistence sectors. Th e new curriculum must be implemented in a well-planned manner with close overall monitoring and supervision. Complementary policy development and teacher training and retraining also is required. Failure to carry out needed initiatives will result in the continued provision of a narrow educational pathway that is not meeting the needs of school leavers. Recent and current school leavers are already disadvantaged in the overseas job market by inadequate English language skills. Government educational institutions are presently failing these students at all levels. School leavers would be well served by the establishment of commercial, private sector provision of English language training to international standards delivered by established and reputable providers.

Wages, Employment, and Emigration

2005 Census

Th e 2005 census enumerated 58,332 persons of working age (aged 15 and over) (Kiribati NSO 2007). Of these, 13,133 persons stated they had recently worked for money wages (“worked for cash last week”), making the ratio of overall employment to the working age population 22.5%. Among cash workers, the ratio of males to females was 68:32, and about half were identiﬁ ed as public sector workers. Of the total reporting paid employment, 61% were in South Tarawa.11

11 A remarkable 652 persons, 61% of the island’s population, were enumerated as in paid employment in Nikunau. Th is and other unexpected ﬁ ndings suggest that the census data on paid employment should be treated with caution. Social Response to Development Risk 69

Figure 9: Persons Reporting Paid Employment in Kiribati by Census, 1985–2005

14,000

12,000

10,000

8,000

Number 6,000

4,000

2,000 0 1985 1990 1995 2000 2005

Source: Kiribati National Statistics Oﬃ ce (2007).

Th e exceptionally strong growth reported in wage employment between 2000 and 2005, at 43% (Figure 9), was greatly in excess of the reported 8% expansion in real gross domestic product over the same period, as noted previously. Whatever the actual growth in wage jobs between 2000 and 2005, youth unemployment clearly rose and has become a serious issue. Each year, the great majority of school leavers are unable to ﬁ nd jobs in the formal sector. Th e education system currently is geared toward formal sector employment, and does not prepare students for what is the reality for most—working in the informal sector or the subsistence sector of the economy.

Labor Market Regulation

Th e labor market is lightly regulated, and comprehensive workforce data are not collected. Th ere is no minimum wage and virtually no protection of workers’ conditions in the private sector. Conditions and entitlements for public servants are governed by the National Conditions of Service, which stipulates retirement at age 50. Public enterprises have generally adopted the same conditions of service and salary levels. Since joining the International Labour Organization (ILO) in 2000, Kiribati has ratiﬁ ed the four core ILO conventions relating to freedom of association, the right to organize and bargain collectively, and abolition of forced labor. Other core ILO conventions relating to child labor and workplace discrimination are being considered with assistance from a working committee that also provides advice to Cabinet. Th e working committee would beneﬁ t from private sector representation. 70 Kiribati Social and Economic Report 2008

Th e Ministry of Labour and Human Resources Development (MLHRD) operates a job registry through which all recruitment for the public service should pass. Th e registry has recruited for about 80 positions in the last 12 months, and in October 2007 had ﬁ ve job vacancies. Th ere are several workers’ unions, but all are inactive except for the seamen’s union. Th e Kiribati Trades Union Congress is the umbrella body for unions. Employers are represented by the Chamber of Commerce, and bus owners have their own association. Th e third arm of the tripartite labor structure is MLHRD and the legal system. Th e minister of labour and human resources development is empowered to appoint an arbitrator to settle disputes other than dismissal of an employee, which can be pursued through the judiciary. Th e Kiribati Provident Fund (KPF) operates a superannuation scheme into which all formally employed workers who earn more than $10 per month are required to contribute 7.5% of their wages. Workers contributions are matched by employers. Self-employed or casual workers, including ﬁ shers, seafarers, agricultural workers, bakers, and smoke makers can voluntarily contribute, and regularly paid workers can voluntarily add to their compulsory contributions. Th e KPF currently has nearly 47,000 contribution accounts—i.e., accounts with credit balances belonging to persons who are contributing or have contributed in the past and have not withdrawn their accumulated balances.

The Workforce

Th e 2005 census enumerated a working age (15 years or older) population of 58,340. Most people of working age consider themselves to be employed in either a paid job or in village work. Others are performing home duties or are students, unemployed, or not able to be employed because of disability or another reason. Most of the workforce has a primary education, with just 3% graduates of a tertiary institution (Figure 10). Of the 13,133 persons stating they had recently worked for money wages, the number enumerated in the 15–19 age group and over 50 age group was very low, reﬂ ecting the increasingly common requirement for workers to have post- school training and retire at the public service retirement age of 50. Village or subsistence workers, numbering 21,582, along with the unemployed, made up about 80% of the workforce. Tatoa and Rouatu (2006) suggest that this could be regarded as the unemployment rate in Kiribati, on the basis that village workers would opt for formal paid work if it were available. About half the workforce is in the 15–29 age group, and about half of this group (around 7,500 in 2007) stated at enumeration that they were looking for work. Th ese younger members of the workforce have better qualiﬁ cations on paper than the workforce as a whole, with two-thirds having secondary school Social Response to Development Risk 71

Figure 10: Educational Levels of the Kiribati Workforce, 2005

25,000

20,000

15,000

10,000 Number of Workers 5,000

No school Preschool Primary JSS Secondary Graduates school school

Level

Graduates = graduates of a tertiary institution, JSS = junior secondary school. Note: Workforce deﬁ ned as those aged 15 and over.

Source: Kiribati National Statistics Offi ce (2007). or higher qualifi cations. As noted earlier, however, recent reports and emerging evidence indicate that educational standards are declining. Th e assumption that a secondary education guarantees a minimum level of numeracy, literacy, and English language fl uency may no longer be valid. Many young people who have school qualifi cations are unable to meet the standards for success in tertiary level study, or in training for, or employment on ships. Th ere is a mismatch between the substance of the education syllabus and education standards, and livelihood opportunities that are available. Th e hope of most parents is that their children will obtain formal employment, preferable with the Government—in part so that their children can support them as they grow older. Th e hope of most I-Kiribati is for a formal job that is more or less guaranteed to be permanent. Formal sector pay levels after some years of successful work and advancement are in the range of $12,000 to $24,000 per year, while some seafarers can send home as much as $12,000 each year when they are working. Th ese are the jobs and the pay levels that most aspire to.

Public Service Employment

Th ere is no single, authoritative source for the number of people employed in the public service in Kiribati. Numbers range from 3,404 on the Public Service Oﬃ ce (PSO) database, to 4,414 in MFED data, to 6,953 enumerated as engaged in public administration in the 2005 census. Eﬀ orts to reconcile PSO and MFED 72 Kiribati Social and Economic Report 2008 data have so far failed. Th e public service employs 53% of paid workers in Kiribati according to the 2005 census, about the same level reported in the 2000 census, implying the public service has grown at the same rate as the private sector. Th e turnover rate in the public service remains very low at about 1%, the same as in 2002. Th e location of most (more than 80%) public service employees is in South Tarawa, as was the case in 2002. A large number of casual workers are employed in the outer islands by island councils. Th ese workers do not appear on the public service payroll and their work is intermittent at low pay levels.

Private Sector Employment

Th e Chamber of Commerce estimates there are about 2,000 businesses in Kiribati, of which most are retail traders. About 1,000 businesses are small, one-person businesses, while two employ just over 200 each. Th e 2005 census enumerated 1,650 persons working in the wholesale and retail trade. Based on information from the Chamber of Commerce, it seems probable that about 3,000 persons are formally employed in the private sector. In addition to the retail trade, a signifi cant number of private sector workers are employed in the transport and communications sector (11.2% of cash workers), and about 7% of all cash workers are reported to be employed in agriculture and fi shing. Th e buses that service South Tarawa provide a good example of I-Kiribati entrepreneurship and furnish incomes for many families. Fares are aff ordable and services are regular, but police need to enforce safety standards continuously. Most formal transport and communications sector activity takes place on South Tarawa. Th e other large sector of employment, agriculture and fi shing, is spread nationwide and supported in part by government subsidies to copra and seaweed production. Th ese subsidies aim to increase rural cash incomes and encourage residence in outer islands. Most young people, however, do not aspire to work in agriculture and fi shing. Like their parents, they hope to become lifetime paid government employees.

Public Enterprise Employment

Th ere are 27 public (i.e., state-owned) enterprises in Kiribati, which together employed about 1,800 people in 2007 according to KPF contribution records. No data are available on turnover, although it is expected to be quite low because of the high level of unemployment. Pay and other conditions of employment are generally similar to those of the public service. Th e potential for public enterprises to increase in size and employ more is limited. Th ey are chieﬂ y based and operate Social Response to Development Risk 73 in South Tarawa and Kiritimati, and in most cases are seen as limiting private sector business opportunities. A high level of government support is provided to public enterprises in various ways, with many still incurring losses. Any attempt to create jobs by expanding public enterprises would almost certainly entail additional subsidies, making it likely that their overall employment will change little in the medium term.

Employment Opportunities for School Leavers in Kiribati

Each year, just over 2,000 young people leave school to search for a livelihood. Th e total number of formal job opportunities likely to be available yearly, both currently and in the next few years, is estimated at about 500 (Table 4). An optimistic projection of yearly private sector growth of 5% is incorporated in this estimate. Some job opportunities in the public and private sectors will be available only to more mature workers, but most of the jobs listed in the table will be suitable for young people who have graduated from the various training colleges.

Table 4: Estimated Number of Formal Employment Openings, Training Institution Opportunities, and Graduates Employed Annually in Kiribati, 2007 Number Agricultural College 0a Fisheries Training Centre 10 Kiribati Institute of Technology 12b Kiribati School of Nursing 18 Kiribati Teachers College 16

Maritime Training Centre 108 Police Training College 20 Total public sector places/jobs 186 Other public service 80c Public enterprises (Estimated employment: 1,800) 40d Norwegian Cruise Line 50 Private sector (Estimated total employment: 3,000+) 150d Total 504 a Depends on renewal of atoll agriculture program. b Estimated number of apprentices employed. c Number placed through Job Registry of Ministry of Labour and Human Resources Development in 2007. d Estimated by author.

Source: Author. 74 Kiribati Social and Economic Report 2008

Th e number of Fisheries Training Centre graduates employed, however, has fallen signifi cantly because of problems within the Japan Tuna Company consortium. Although the 2005 census found an increase in people involved in paid employment, the number of formal jobs available each year for school leavers has not increased since 2002. Th e reported increase in cash work in the week preceding the census—welcome though it is as a sign of increased access to cash incomes—does not equate to formal jobs. Th ese appear to have fallen, mainly because of a reduction in employment for fi shers on tuna boats. Th ere are reported shortages of skills in mechanics, carpentry, construction, and plumbing, but Kiribati Institute of Technology (KIT) graduates do not have the required skill levels or relevant experience to fi ll positions in construction companies in Kiribati. At present, KIT is not producing workers with the skills in demand by employers in Kiribati or the region. A timely review of KIT is under way. Th ere is potential for more seafarers and hospitality crew to be employed by South Pacifi c Marine Services (SPMS) and the Norwegian Cruise Line (NCL). Th e demand from employers has existed since 2002. Th e ability of Kiribati to respond is likely to be realized over the next 2–3 years through investment by NZAID in expanded capacity at the Maritime Training Centre (MTC). However, securing these jobs is not just a matter of technical training. Global competition for them is strong, and Kiribati will have to apply funds and eff ort to ensure adequate educational, health, and technical preparation of the job seekers.

Prospects for Growth in Employment

Tourism Th e scope for more tourism is often mentioned in Kiribati as a potential source of jobs, but there are real constraints on this potential. Employment in hotels and motels in Kiribati increased by about 2% annually from 1995 to 2005. Development of the sector is discussed separately in Chapter 3. Th ere have been signiﬁ cant employment beneﬁ ts to the Tabuaeran community since 2000 through the visits of NCL ships. Th is is also discussed in Chapter 3 in the context of development of the Line and Phoenix islands.

International Seafarers and Cruise Ship Employment Seafarer and cruise ship employment is an established and important area of employment for I-Kiribati. All seafarer graduates from MTC will be employed on SPMS ships on a permanent basis, provided they maintain good health and technical skills, and avoid disciplinary problems. As described previously, however, signiﬁ cant threats to the continuation of this employment opportunity are arising from Social Response to Development Risk 75

(i) the age and condition of facilities and equipment at MTC, (ii) the lack of interest and attention from the public service administration, (iii) the low level of operational funding from the Government for MTC, (iv) the low level of English language skills possessed by MTC recruits, (v) frequent cases of hepatitis B and the capacity of Tungaru Hospital laboratory and staﬀ to reliably conduct hepatitis B tests, and (vi) discipline problems with trainees at MTC and with I-Kiribati seafarers and cruise ship crew aboard ships.

Th ere is increased competition from countries such as India, Philippines, and Sri Lanka for seafarer jobs. Many of the maritime training facilities in these countries receive substantial government support, are accredited to deliver oﬃ cer-level training, and employ English as their oﬃ cial language. If Kiribati is to maintain its share of this growing market, it will have to improve the health and English language standards of recruits and graduates, maintain standards in seamanship and engineering skills, increase the number of graduates, and continue to improve the self-discipline of trainees. SPMS has a long and warm relationship with MTC and is prepared to work with the Government to overcome current problems. In 2007, there were 1,020 seafarers at sea, 274 on home leave, and 46 on their way to ships. SPMS would employ more Kiribati seafarers if they were available, and would like to have another 500 on its books. Shipping Agencies of Kiribati recruited about 100 crew members for NCL ships in 2007. Under the agreement between the Government and NCL, Kiribati will supply an additional 50 crew members each year until 2011, basically for hospitality jobs. Over the next few years, the number of I-Kiribati seafarers could be increased by 500 and cruise ship crew members by 400. Th ese jobs pay well, with those employed sending home from US$1,000 to more than US$1,500 each month when they are working. Contracts are for long periods, however—from 11 to 13 months, with about 2 months at home between contracts. Separation from families is hard for seafarers, cruise ship crews, and their families.

Tuna Fishers Fishers who graduate from the Fisheries Training Centre (FTC) are commonly employed on Japanese tuna boats. Unfortunately, the Japan Tuna Company consortium has reduced its fl eet from 30 to 24 vessels because of fi nancial diffi culties. Opportunities for employment of Kiribati fi shers consequently have diminished. Th e number of Kiribati fi shers on Japanese tuna boats declined from 76 Kiribati Social and Economic Report 2008

320 in 2002 to 170 in 2007. About 20 Kiribati fi shers are employed on tuna boats from the Republic of Korea and Taipei,China, and on some tuna boats in New Zealand waters. Th ese placements have been organized by Central Pacifi c Producers Limited. Over 800 fi shers have been trained at FTC. Th e Government is exploring additional work opportunities for them, but the future is not assured.

New Zealand Seasonal Employment Program Th is program will off er unskilled workers from Kiribati the opportunity to work in New Zealand for 9 months, with the possibility of regular return to New Zealand for work. Th e program has high potential to provide paid employment for both men and women. Th e jobs available are in fruit picking and other agricultural activities. Based on a pilot program conducted in 2007, these jobs could off er I-Kiribati the opportunity to bring home about $8,000 from each stay in New Zealand. Up to 5,000 jobs currently are available for fi ve Pacifi c countries: Kiribati, Samoa, Tonga, Tuvalu, and Vanuatu. Employers and workers are expected to share the costs of the program. Kiribati and Tuvalu have negotiated a 9-month stay in New Zealand for their workers, instead of the 7 months off ered other countries. Th e longer stay is expected to help off set the higher cost of airfares. To date there have been almost 1,000 applications from Kiribati, with about 550 considered suitable. Th ere has been little previous interest from New Zealand employers in Kiribati workers, mainly because of lack of contact. Kiribati’s MLHRD will need to be proactive if Kiribati is to benefi t fully from the scheme.

Migration

Nurses to Australia Australia and Kiribati have agreed to implement the Kiribati–Australia Nursing Initiative. Th is program will see 30 locally qualifi ed nurse applicants per year over a 3-year period go from Kiribati to Griffi th University in Queensland to obtain a 1-year certifi cate, a 2-year diploma, or a 4-year nursing degree. Once qualifi ed, the graduate nurses will be eligible to stay and work in Australia. Th e program meets the need for Kiribati to expand employment opportunities, and helps fulfi ll Australia’s need for more nurses. It has found many applicants desiring to take part and incorporates support for strengthening the College of Nursing in Kiribati.

The Pacifi c Access Program in New Zealand New Zealand has developed a program that gives the opportunity to 75 I-Kiribati to live in New Zealand for 1 year, during which time they must fi nd a job. If they Social Response to Development Risk 77 do not have a job at the end of 1 year, they must return to Kiribati. Successful program applications are chosen via a lottery. In 2007, 30 trained teachers were among the 75 chosen, highlighting the downside of the program for Kiribati of exporting skilled people. Th e program has only started, but it already provides an important and potentially signifi cant opportunity for I-Kiribati to migrate and work abroad.

The Future

Job opportunities in Kiribati at present are inadequate to meet the needs of the growing population. Although the number of opportunities has been increasing, the annual increase is far below the number of yearly school leavers. Job opportunities are likely to continue to increase, but slowly. Some I-Kiribati will be content with village life and opportunities off ered by the subsistence economy, while others will take advantage of opportunities in the paid workforce in Kiribati. However, climate change is expected to exert noticeable pressure on the physical environment well within the lifetime of those now living. For increasing numbers of I-Kiribati, the opportunity to live and work overseas will provide the economic future they seek. Overseas work opportunities already identifi ed will provide some options. However, if the current and future youth population is going to have suffi cient access to jobs, expansion will be needed in overseas opportunities, in both number and variety.

Risks Multiple threats are associated with I-Kiribati aspirations for work—in the subsistence sector, or in paid employment in Kiribati or overseas—and for migration overseas:

(i) Th e Government may not invest suﬃ ciently in the education and training sector and the health sector to deliver the services needed to prepare I-Kiribati for work overseas. (ii) Th e public service may not fulﬁ ll its role of adequately administering the education and training sector and the health sector. (iii) MTC may be unable to maintain standards in the more competitive environment, and Kiribati’s share of the seafarer market will diminish. (iv) KIT may be unable to adequately restructure its curriculum and deliver graduates with the skills in demand by the private sector. (v) English language skill levels that are inadequate may interfere with aspirations for employment overseas. 78 Kiribati Social and Economic Report 2008

(vi) Disease or diet may likewise interfere. Hepatitis B and lifestyle diseases are already costing many young I-Kiribati the opportunity to work overseas.

Managing the Risks Several ministries and institutions contribute to the preparation of I-Kiribati for employment. Each will need to eff ectively manage the risks that could prevent I-Kiribati from achieving their aspirations and productive lives at home or overseas. Th e Ministry of Health and Medical Services (MHMS) is already implementing vaccinations against hepatitis B for newborn babies. Concern has been raised by medical staff that children of mothers who are hepatitis B positive will not be protected from the disease unless they are given an additional hepatitis B immune globulin. MHMS will need to provide this additional immune globulin and ensure that newborn and infant vaccines are administered correctly and in a timely manner. Additionally, confi dence in the reliability of laboratory results from Tungaru Hospital will need to be restored, or higher-cost overseas testing will be required. Th e Ministry of Education needs to review and revise school curricula to provide a broader education and raise standards in literacy, numeracy, and English language skills. Th e Government should provide MTC suffi cient recurrent budget for operations, improve the quality of administrative support, and fund needed equipment and maintenance so that seafarers and cruise ship crews can be trained to international standards. KIT should review and revise its curriculum to better respond to the needs of the private sector and employment opportunities identifi ed in available studies and the soon-to-be-available 2007 Labour Market Analysis. Th e private sector could usefully contribute to curriculum development. More fl exibility should be applied in deciding the length and location of vocational training courses. Th e public service needs to reform its conditions of employment to place more emphasis on performance management, and introduce fair, consistent, and simple to administer consequences for poor performance. Leaders and managers will have to become more committed to setting and achieving individual and team standards of performance. Changing work habits will be diffi cult for staff who have worked in an ineffi cient environment without any sanctions for poor performance. Strong leadership and targeted allocation of money and trained people will be needed to raise skill levels and work attitudes in Kiribati to standards that are internationally competitive. Social Response to Development Risk 79

Health and Welfare

Health Policy and Resources

MHMS aims to distribute improvements in health services equitably throughout Kiribati. Th e aim implies access to free basic health services for the entire population. Th is is particularly diffi cult given the concentration of half the population in South Tarawa, and the dispersion of the other half in small communities across vast ocean distances. Th e limited budget resources of MHMS and the realities of transport and communications on the outer islands mean that basic health services are not accessible to all. Budget allocations for MHMS decreased from 17% of the recurrent budget in 2006 to 15% in 2007. Health suff ered reduced allocations for salaries, internal travel, overseas purchases and services, and cleaning. Adequate budget resources are essential if MHMS is to improve the equitability of health services delivery. MHMS budget management has allowed improvements in some basic health indicators (see Table 5), but constraints on staff , pharmaceuticals procurement and distribution, aid posts, transport, and communications hamper service delivery. MHMS currently has about 590 staff , of whom 28 are doctors and about 270 are trained nurses. Th is staff serves in three hospitals: Tungaru and Betio Hospitals in South Tarawa and the Kiritimati Island Hospital. Th ese hospitals provide a total of 146 hospital beds, plus a mental hospital in Tarawa. A fourth hospital with 20 beds is being constructed in North Tabiteuea to serve the Southern Gilbert Islands. Th e 28 doctors are all based in South Tarawa or Kiritimati, within 1–2 hours’ travel of about half the country’s population. Normally, this number of doctors would be adequate to serve a population of around 100,000 located in reasonable proximity, but half the Kiribati population is widely dispersed. Kiribati is currently benefi ting from bilateral assistance from Cuba in the form of trained doctors with a work ethic strongly oriented toward helping the poor. Ten Cuban doctors are working in Betio, the most congested area of South Tarawa, with an additional 10 expected. Th e fi nal number is expected to reach 32, many to be posted in the outer islands, including at the new Southern Gilberts hospital. MHMS is treating this assistance as a welcome medium-term augmentation of its fi eld strength, but does not appear to be preparing for its institutional and fi nancial sustainability in the longer term. Th e Southern Gilberts hospital, due to open in mid-2008, is a good example of a politically driven, unplanned decision with recurrent budget and other consequences. Capital investment costs of the new hospital are being met by grant aid from Taipei,China, but the MHMS recurrent budget will have to meet 80 Kiribati Social and Economic Report 2008

Figure 11: Changes in Access to Safe Water and Sanitation, and Infant Mortality in Kiribati

30 Percent of Population (%) 20

0 1995 2005

Infant mortality Access to safe water Access to sanitation

Source: Kiribati National Statistics Offi ce (2007). operating costs. Th e idea that newly provided services in the Southern Gilberts will generate an off setting reduction in demand—and hence fi nancial savings—at the national hospital seems unlikely. Staffi ng and other operating costs of the new hospital, which includes a mental wing, will put substantial additional strain on the MHMS budget. MHMS (and health services generally) would benefi t greatly from establishment of a heath services database similar to the Kiribati Educational Management Information System (KEMIS). Experience with the KEMIS could readily be made available to assist in the design and implementation of a health service database, and such an activity is likely to be suitable for donor funding.

Achievements

Th e proportion of the Kiribati population served with safe water and adequate sanitary facilities increased, and infant mortality decreased between 1995 and 2005 (Figure 11 and Table 5). Although the ADB Sanitation, Public Health, Social Response to Development Risk 81

Table 5: Basic Health Indicators for Kiribati Indicator 1995 2000 2005 Population (total number) 77,658 84,494 92,553 0–14 years (number, % of total) 31,957 (41%) 33,772 (40%) 34,193 (37%) 50+ years (number, % of total) 8,414 (11%) 9,290 (11%) 10,620 (12%) Crude birth rate per 1,000 population 32.2 26.4 26.7 Infant mortality rate per 1,000 live births 65 61a 52

Maternal mortality rate per 100,000 live 225 56 158 birthsb

Life expectancy at birth: Male 57.2 62.3 58.9 Female 58.2 67.3 63.1

Total fertility rate 3.8 4.3 3.5 Population served with safe water (%) 51 – 65c

Population served with adequate 46 – 68d sanitary facilities (%)

– = data not available. a Updated from Kiribati Census 2000. b Data unreliable because of small sample. c Asian Development Bank (2007a). d Includes ﬂ ush and over-sea latrines.

Source: 2005: Kiribati National Statistics Offi ce (2007) except as noted; 2000 and 1995 data: Ministry of Health and Medical Services database. and Environment Improvement Project (SAPHE) did not meet expectations, it contributed to this improvement. Maintaining these gains will require determination, however. Th e ADB completion report for SAPHE noted that service coverage since project completion had decreased 30%, and expressed doubt that Public Utilities Board management would be able to maintain services (ADB 2007b). Th e reduction in infant and child mortality rates does not, however, put Kiribati on track to reach the Millennium Development Goal of reducing the under-5 mortality rate by two-thirds by 2015. Kiribati has not achieved its child immunization goals. According to the United Nations Children’s Fund (UNICEF), the coverage of the “EPI [Expanded Programme on Immunization] coverage has not improved and may even have slipped” (UNICEF 2005). In addition, UNICEF states that measles coverage is particularly weak and young children are threatened by a severe measles outbreak. Th e relatively high infant and child death rates refl ect the fact that children in Kiribati still die from readily preventable causes. Reports indicate that an intensive program of regular home 82 Kiribati Social and Economic Report 2008 visits in South Tarawa by the newly arrived Cuban doctors already has dramatically reduced birth-related mortality. Th e trend in maternal mortality is diffi cult to assess because of the unreliability of the data due to the small population sample. However, the estimate for 2005 showed improvement on the estimate for 1995, and the level could improve further. Th e number of births attended by skilled health personnel has increased (Table 6), which has probably contributed to reducing the country’s maternal and infant mortality rates. Th e mixed results in basic health indicators should give MHMS and the Government cause for concern, particularly in view of the MHMS budget cut in 2007. Strategies to improve the health situation are suggested in the section in this chapter on managing the risks.

National Development Strategies 2004–2007

Results also were mixed in achieving the health aspects of the National Development Strategies 2004–2007. Development of the comprehensive population policy was led by MHMS, but arrangements for overall coordination and implementation of the policy are not yet in place. MHMS and the Kiribati Family Health Association (FHA) have continued to implement their family health and planning activities, but the proactive, community-supported approach to family planning as envisaged in the National Development Strategies has not yet materialized. Th e distribution of medicines and services to outer islands remains an issue to be addressed, although some progress has been made with the support of WHO and the EU. Th ere is a growing need for preventive interventions against lifestyle diseases. Th e newly arrived Cuban doctors instituted a proactive approach, visiting families in Betio, checking their health, and advising them on health needs. Other teams have been promoting good health and appropriate body weight during visits to government departments, schools, and sports associations. Th is engaged and caring approach is welcomed by the community and has achieved positive results, provoking some soul-searching about why nothing occurred before the arrival of the Cuban doctors. Overall, improvement in the timeliness and delivery of curative and basic public health services as envisaged in National Development Strategies has not yet occurred. Th e Southern Gilberts hospital is expected to begin operations in mid-2008, but its likely impact on public health is at best uncertain. Its main impact may turn out to be providing a base from which the Cuban doctors can operate a more eﬀ ective rural health service. Social Response to Development Risk 83

MHMS has recently permitted its doctors to operate part-time private practices at Tungaru Hospital after regular hospital hours, thus breaking down a major cost barrier to doctors of establishing a practice. Doctors pay the hospital 10% of their consultation fees plus the cost of materials used. Providing these fees are collected, this arrangement is an innovative and useful way to introduce private practice. Th is seemingly small action is, in reality, a large step because it legitimizes private medical practice in the health system for the fi rst time. In addition, charges were introduced in 2006 for dental, x-ray, and laboratory services, and for medical certifi cates for overseas workers as well as for secondary and tertiary students. However, a privately owned retail pharmacy has not yet been established. Over 400 water-seal latrines have been constructed as a result of a public awareness campaign and an on-site health education campaign carried out cooperatively by the health and environment promotion departments. Generally, an educational approach to encouraging compliance with public health legislation does not seem to achieve results, but no information is available about other successes or failures with this approach. While overall results in the health sector were mixed, improvements under National Development Strategies 2004–2007 generally have come as a result of support from development partners. However, some innovative actions were undertaken by MHMS, such as the introduction of private practice for government doctors, and the successful negotiation for development partner support for priority needs identifi ed by MHMS.

Environment and Lifestyle Risks to Health

Factors aff ecting health are complex, but many are related to environment and lifestyle. Many people speak of the lifestyle and natural environment in most outer islands as desirable—from a distance. Generally, however, people continue to move to urban settlements. Th e attractiveness of modern lifestyles is also aff ecting life in the outer islands. Rice and sugar have become staple foods, and electric power and computers are sought. On the other hand, “permanent building” schools and offi ces (those with concrete fl oors and walls and sheet metal roofs) are not maintained, water sources are becoming polluted, and nonbiodegradable garbage is building up. In South Tarawa, where almost half of the population lives, resources are under pressure and the environment and lifestyle have a signifi cant impact on health. Water is scarce, many water sources are polluted, and people and animals live in proximity; many people have little or no privacy. Houses are often makeshift or in poor condition, overcrowded, and with inadequate ventilation. 84 Kiribati Social and Economic Report 2008

An increasing number of cars and buses travel along the one main road. Th e Ministry of Environment, Lands and Agricultural Development has worked hard with strong NGO support to raise community awareness about the need for a clean environment. Th e condition of public open spaces has improved, and rubbish collection has been sustained and partially privatized. Kiribati still faces a high incidence of infectious diseases. Diarrhea and dysentery, acute respiratory infection, and tuberculosis are still problematic. Poor living conditions in urban areas are contributing to the continued spread of these and other communicable diseases. Vitamin A defi ciency, especially prevalent in some of the outer islands, is being counteracted with a vitamin supplement program. Food poisoning remains a regular occurrence. Traffi c accidents, while they have decreased, are still frequent. South Tarawa citizens comment on the improvement in road safety that has resulted from the Kiribati Police Service (renamed from Police Force) eff ectively tackling the problems of speeding and drunken driving. Lifestyle diseases have arrived in Kiribati. Heart disease, hypertension, diabetes, obesity, and cancer are becoming more prevalent, particularly in South Tarawa and Kiritimati. Th ese diseases are contributing to increased hardship in the community and higher health service costs. In 2003, it was estimated that these diseases accounted for 8% of all hospital admissions. Tobacco and alcohol- related illnesses accounted for almost 10% of admissions, a fi gure that could soon double (UNICEF 2005). Th e Alcoholics Anonymous group in Tarawa reports that it has almost 1,000 members.

Family Health and Family Planning

A major health concern for women in Kiribati is family planning and the health problems associated with pregnancy and childbirth. Th is is reﬂ ected in the concerns of women’s groups, which report that women of all ages and religious aﬃ liations are requesting information about and access to family planning methods, termination of pregnancies (in some cases), gynecological tests for various diseases, and help with conditions such as incontinence. Th e contraceptive prevalence rate was a low 18.5% in 2005 (Table 6). Pregnancy termination is sometimes requested of the Kiribati FHA, often by young women after their attempts at termination have failed. Teenage pregnancy is reportedly increasing, with public concern about the perceived increase in pregnancies at both junior and senior secondary schools. Almost 9% of birth deliveries were to adolescents in 2005. Family health is an issue for both men and women. Th e Kiribati FHA runs workshops on family health in conjunction with other workshops for men to encourage their participation. More men reportedly are requesting information Social Response to Development Risk 85

Table 6: Indicators Related to Pregnancy and Birth in Kiribati Indicator 2001 2002 2003 2004 2005 Women of child-bearing age 19,937 20,277 20,622 20,974 22,089 (number) Contraceptive prevalence 18.5 22.1 21.9 21.6 18.5 rate (%) Delivery to adolescents (%) 6.9 8.3 9.5 6.9 8.9 Antenatal care coverage (%) 89.5 104.2 85.2 110.4 105.4 Births attended by skilled 87.4 88.9 87.4 87.0 89.3 health personnel (%) Births in health facilities (%) 80.1 76.3 81.2 82.7 85.0 Low birth weight prevalence (%) 6.4 8.2 7.1 6.6 5.8 Maternal mortality rate 151.0 102.0 166.0 215.0 158.0 (per 100,000 births)

Source: Ministry of Health and Medical Services database.

about family health, family planning, and safe sex. Kiribati FHA staﬀ also delivers talks on family health, including safe sex, to junior and senior secondary school students. Th ese talks currently are banned in Catholic schools.

Mental Illness

Mental illness is becoming more evident, particularly in South Tarawa. Th e pressures associated with living in a crowded urban environment, often looking after a large family—frequently with additional children from outer islands relatives, and fulfi lling the fi nancial and other expectations of an extended family—can cause high levels of stress. Many people turn to alcohol to relieve this stress, often resulting in unacceptable and violent behavior. Suicides have increased (Figure 12), and three tuna fi shers committed suicide in the last few years while working away from home. Th e mental hospital in Tarawa accommodates 60–64 patients, about 10 of whom are female. Staff comprises one psychiatrist, fi ve nurses, and 18 orderlies. Patients range in age from 18 to about 50. Th ese patients have been described as schizophrenic, but senior staff express some doubt about this diagnosis, suggesting that alcoholic addiction was the cause of most patients’ problems. Concern was expressed by staff about the lack of information about mental illness and its incidence and causes in Kiribati. Th e hospital is poorly maintained, very sparsely furnished, and poorly resourced. Staff is inadequate in number and training to work eff ectively with patients, and require knowledge and training for this purpose. Discharged patients 86 Kiribati Social and Economic Report 2008

Figure 12: Suicides Reported in Kiribati, 2000–2006

16 14 12 10 8 6 4 Number of Suicides 2 0 2000 2001 2002 2003 2004 2005 2006

Source: Kiribati Police Services database 2007. tend to return to the hospital, often because there are no community follow-up programs and they are not welcomed by their families. Up to one third of mental hospital patients have infectious diseases such as tuberculosis or hepatitis B, but facilities to treat them adequately are lacking. In 2005 and 2006, ﬁ ve patients committed suicide. It is intended that the Southern Gilberts hospital will have a wing for mentally ill patients.12 Th ere is a critical need to improve conditions in the Tarawa Mental Hospital and to resource the Southern Gilberts Hospital adequately for proper treatment of the mentally ill.

HIV/AIDS

Th irty-ﬁ ve cases of HIV were reported in 2001. In 2007, 50 cases were reported, which included 32 males and 18 females. Twenty-three people have died from AIDS (MHMS 2007). Th e main mode of transmission is heterosexual intercourse. Information about the spread of HIV is not reliably available, but increased public awareness of the risk and the means of preventing it is informally reported. A prevalence survey conducted in 2005 (WHO 2006) showed zero prevalence of HIV in pregnant women aged 15–24 years (MHMS 2007). An active HIV/AIDS taskforce supported by WHO and UNICEF undertakes community education and encourages voluntary counseling and testing aimed at preventing the spread of HIV. Health education is delivered by NGOs in some secondary schools to educate young people about the risks of contracting HIV through unprotected sex.

12 Th e 2005 census enumerated 51 people in mental institutions in outer islands. Social Response to Development Risk 87

Emerging Issues

Sexually transmitted infections (STIs) STIs are a critical health issue. Th e Kiribati FHA reported that of 30 to 40 Pap smears performed each month, more than half test positive for an STI. A WHO survey in 2006 showed that there is generally an increasing incidence of both STIs and HIV in Kiribati (WHO 2006). Chlamydia is endemic among both pregnant women (13.0%) and seafarers (9.3%). High rates of treatable STIs indicate that the diagnosis, treatment, and surveillance component of STI and HIV programs need strengthening (MHMS 2007).

Hepatitis B Hepatitis B is a very serious concern because it is aﬀ ecting the ability of young people to pursue maritime careers and overseas study opportunities. Th ose who test positive are rejected for employment and study.

Underage drinking Underage drinking and its increasing prevalence is of general public concern. Th e legal age for alcohol consumption is 21, but underage drinking is common and diffi cult to police. Given the low price of beer, the ready availability of fermented toddy, and the prevalence of alcohol consumption—particularly in South Tarawa—it is not surprising that underage drinking occurs. Drunken junior secondary school students have been arrested at schools in South Tarawa, and a growing number of teachers have been observed drinking kava13 on school premises. Reported drunkenness and underage drinking have increased sharply since 2003 (Figure 13). Heavy consumption of alcohol can result in increased hospital admissions and death because of liver damage, traffi c accidents, and violence brought on by drunkenness. Alcohol consumption can also exacerbate the eff ects of hepatitis B.

Welfare and Family Support

A healthy lifestyle helps maintain the physical and mental strength needed for living on an isolated coral atoll. Increasingly, however, stress is aﬀ ecting the health of Kiribati’s people as globalization and monetization impinge on their way of life and the way they see themselves.

13 Th e kava plant does not grow in Kiribati. It is imported in powder form from the Fiji Islands and sold in shops and kava bars. 88 Kiribati Social and Economic Report 2008

Figure 13: Reported Cases of Underage Drinking and Drunkenness in Kiribati

1,200

1,000

800

600

er of Cases

Numb 400

200

0 2000 2001 2002 2003 2004 2005 2006

Underage drinking Drunkeness

Source: Kiribati Police Services database (2007).

Changing Attitudes Education, higher incomes, increased monetization of the economy, and greater interaction with the outside world have created new pressures, demands, and opportunities in Kiribati. More than half of the total population is under 25 years old, many with attitudes and aspirations that diﬀ er markedly from those of past generations. Th e amount of land that will be available for them to live on and support themselves is at risk from rising sea levels. However, subsistence cultivation on remote atolls is losing its appeal to the majority of people as a valid and worthwhile way of life. Th ere are now some thousands of I-Kiribati who have traveled overseas to study and work. Th ey returned with new electronic goods, experiences, insights, and, in many cases, attitudes. Young people in particular are being exposed to the internet, crowding into internet cafés to log on to chat rooms, play music and games, and watch DVDs. Th ey are exposed to new attitudes, ideas, and consumer goods even before they travel overseas. Th e result is that in South Tarawa in particular, where almost half the population lives, conﬂ icts in values are emerging which often are intergenerational in character. Junior secondary school students are studying with members of the opposite sex and often living away from their families. Th ey mix freely and dress in less traditional ways. Th ey chose their own partners rather than conform to family choices, and often disregard instructions and advice of parents and elders. Th eir peers can be more important to them than their family. Th e emergence of Social Response to Development Risk 89

“fams”—informal and loosely-organized groups of students from diff erent schools and of diff erent ages—is one way they show their allegiance to their peers. People of all ages must reconcile traditional values and lifestyles with the demands of work and study within a Western framework. Th ese group-based developments do not have to be destructive. Th ere is a need for older authority fi gures to discuss and understand the pressures aff ecting the young people of Kiribati, and encourage leadership and strategies that reduce rather than worsen confl ict, that channel energies into constructive activities.

Stress Th e traditional lifestyle of Kiribati is one of openness and community involvement. Th e community supported its members, and individuals were expected to abide by community values of equity, sharing, and support for those in need. Marriage partnerships were arranged, virginity before marriage was valued, and faithfulness to partners was required, with punishment for those who broke the rules, and jealousy of potential other partners common. It was expected that one member of the community would not rise above the others in terms of material possessions. It was a lifestyle of give and take, and everyone had access to land. In South Tarawa today, houses are generally open but very close together, so privacy is almost nonexistent. A family often will be expected to look after children of outer island relatives who have come to attend school in Tarawa. Many women still have large numbers of children, and many of them work in addition to being responsible for families. Th e number of families headed by women has increased. Alienation between children from the outer islands and their families is common. Some children and youths are now virtually homeless, moving from home to home to sleep and have meals wherever they can. Th ere is strong competition for the few available jobs, and incomes are low and must be stretched a long way. Some families are living from the proceeds of collecting cans and bottles to claim the bounty paid for re-exportable containers.14 Th ere is a lack of facilities—space, actually—for spontaneous and informal recreational activities. Some South Tarawa people have sold their land, and others from the outer islands have to lease land permanently in South Tarawa. Th e result is increased pressure and stress on residents of South Tarawa. Similar circumstances can be found on the outer islands, but not to the same extent. Th e extended family often is no longer available to help solve problems. Family support for an abandoned wife, for example, is diminishing, while the incidence of abandoned wives is increasing. Th e number of people without land,

14 Th is remarkable operation, successfully established by the Foundation for the Peoples of the South Paciﬁ c, has been privatized and continues to operate successfully. 90 Kiribati Social and Economic Report 2008 and therefore without security, is growing. Formal employment is not increasing at the same rate as the population is growing. Th e churches have taken on support roles that would often have been assumed by the community and the extended family in the past. Th eir contribution is important and valued, but church groups can be parochial and only serve their members. Th ey can be demanding in terms of contributions, which can put more pressure on families. Th e Government has made large donations to the churches in a move to lessen the demand for contributions, but community comments indicate that the pressure for church contributions has not diminished.

Social Consequences One result of this confl ict of values and attitudes is that both young people and adults tend to look for comfort in short-term relationships that seem stress free. Th is causes family problems, sometimes resulting in family breakups. Reports are increasingly heard that payday Friday will see a husband stay away from home until the following Sunday evening or Monday morning. When he does return home, it is without his pay, and the wife is forced to live from hand to mouth as she tries to support their children. Th e ainen matawa (young girls who receive money or other payments from overseas fi shermen in return for sex) are reportedly often encouraged to do so by their families. Some girls now reportedly have senior public servants as customers, and some have supplemented their earnings by stealing money from clients. Th ese activities are the result of the lack of alternative job opportunities, the constant need for cash, and the existence of a ready market for prostitution in the relative anonymity and freewheeling atmosphere of port and urban areas. Th e rise in alcohol consumption is refl ected in police statistics, with a corresponding upsurge in domestic violence and other forms of violence (Table 7). Th e police have established a sexual assault unit that assists offi cers in cases of domestic violence and rape. Domestic violence charges are rarely followed through, however. Community attitudes encourage couples to work out their diff erences—often meaning, in today’s circumstances, that nothing is done. Communities report that the incidence of gang fi ghts is increasing. Th e police are taking an active role in working with churches and communities to prevent underage drinking and gang violence, and have been proactive in preventing road accidents. Documented cases of suicide increased through 2006, which included fi ve mentally ill patients in 2005 and 2006 (Table 7). Th e trend appears to be continuing upward in 2007. Th ree additional I-Kiribati suicides occurred on tuna boats and a suicide was recently reported on an overseas cruise ship. Social Response to Development Risk 91

Table 7: Incidence of Selected Crimes in Kiribati, 2000–2006 (Number)

Item 2000 2001 2002 2003 2004 2005 2006

Drinking underage 18 84 21 76 190 551 560

Drunkenness 727 160 209 280 493 1,142 687

Drunk and driving 112 252 45 166 10 102 73

Speeding 153 0 62 7 1,336 2,419 1,168 Reckless driving 16 0 6 5 9 11 12 causing deatha

Indecent assault, 22 88 15 38 9 48 60 attempted rape, and rape

Assault 323 136 184 164 191 490 538 Domestic violence –––– –410

Suicide 517811414 Murder 2002 375

– = data not available. a Th ree deaths occurred as a result of these reckless driving cases in both 2005 and 2006.

Source: Kiribati Police Services database 2007.

Support Systems Th e Government favors relying on traditional support systems for welfare support for families. However, traditional social safety nets have been weakening for some years, with the result that the Government has made some welfare payments. Th e holes in the traditional social safety net have grown larger because of the pressures on society previously described, and government and community systems are struggling to cope with growing need. Pension payments of $40 per month to people 70 years and older appear to work well. Th e school fees for senior secondary students are paid when their fathers are deceased or handicapped. In all other circumstances, the welfare system provided through government services relies on traditional methods of support—i.e., the extended family or the church. Twenty-one social workers were appointed by the Government in 2004 to work in communities across Kiribati. Th ose appointed were school leavers, and were provided 2 years of informal training. Th e assignment of these young social workers is diﬃ cult, not only because of their youth and inexperience, but also because they have no resources to help people in need. Consequently, they work closely with the churches, village networks, and NGOs to resolve problems. 92 Kiribati Social and Economic Report 2008

A woman’s crisis center has been established in South Tarawa as well as an alcoholics’ anonymous group, both operated by the Catholic Church. While this approach is reasonable as long as social problems remain manageable, their scale in Tarawa continues to escalate. Th e Government may have to provide more support to agencies providing welfare services. Th e Government has provided funds for each island community to build a maneaba in South Tarawa, and many have been built on land near the airport. Th e intention is that each island community in South Tarawa will be able to operate more eﬀ ectively with traditional authority systems in place. Reactions from communities about the eﬀ ectiveness of this plan are mixed, mostly because of the location of many of the maneabas in a relatively small area that is considerable distance from many of those experiencing problems. Th is attempt by the Government to involve and give responsibility to communities for helping people solve their own problems will need considerable additional support if it is to succeed.

Managing the Risks

Health Public perceptions of the greatest risks to health in Kiribati are poor diet; the increase in some diseases, such as HIV/AIDS, tuberculosis, high blood pressure, and heart disease; adolescent mothers; and alcohol abuse (MFED 2007). Some important additional risks not identifi ed are the increase in sexually transmitted infections, hepatitis B, and behavior resulting from high stress, such as mental illness and suicide. MHMS has had a number of plans to cope with health risks, including the 1999–2002 Public Health Plan, the National Strategy to Prevent and Control Non-Communicable Diseases 2004–2009, the MHMS Corporate Strategic Plan 2008–2011, aspects of the National Development Strategies 2004–2007, and elements of the National Sustainable Development Plan 2008–2011. Additionally, both WHO and UNICEF have health plans for their program areas that include Kiribati. Th e most important plan in terms of improving health services is the MHMS Corporate Strategic Plan 2008–2011. MHMS has the leadership required to implement this plan by developing ministry operational plans that can be implemented and monitored. MHMS will need adequate funding to fulfi ll the demands made on it by the Government and the public, and MHMS staff will need to adopt proactive attitudes toward identifying and dealing with key issues. Social Response to Development Risk 93

To bring hepatitis B under control, there will need to be an increase in available resources, and a commitment to administer two vaccinations at birth and reliably follow up with two additional vaccinations. Laboratory systems at Tungaru Hospital also will require strong supervision if they are to improve. Progress toward reducing hepatitis B cannot be made if hospital tests are unreliable. A reliable information system is needed that provides a similar quantity and quality of information about health as the Kiribati Education Management Information System now does about the education system.

Welfare and Family Support Th ere are risks that crime, mental illness, and suicide will continue to increase unless the pressures that cause people to turn to alcohol and violence are diminished. It is likely, however, that the traditional safety net provided by the extended family will go on weakening in the face of monetization and migration, with growing risks of family breakdown and homelessness. Th ese problems cannot be treated as public health or law and order issues. More human and fi nancial resources are required for welfare and family support, and intelligent intervention. Th e government strategy of working through community institutions is appropriate, but there is little or no assistance for homeless or neglected children, for women who suff er violence and neglect at the hands of their husbands, or for youths who need places to meet where they can fi nd recreational activities and discuss their problems with friends and mentors. Th ese aspects of welfare support need additional resources. Th ere is a need to review, respect, and reinforce traditional community support mechanisms such as the unimwane, women’s and youth groups, and the churches, so that they can deal more directly and eff ectively with growing social needs. Economic Response to Risk

he growing inequality of income and opportunity is potentially the source of the most serious risks in the development process of Kiribati. Most traditional communities in Kiribati have a cultural bias toward an egalitarian distribution of wealth and power. In recent times, Tgovernment policies and programs appeared to refl ect this, but actual distribution of income and opportunity is becoming progressively more inequitable and creating instability as monetization of values and relationships proceeds. Government statements on development policy and strategic plans emphasize continued economic growth with more equitable distribution of costs and benefi ts through improved governance. Th e aims are to narrow the gap between wealth and poverty by promoting more widespread private investment in production, and by improving the effi ciency of public provision of services and infrastructure. Th e mere continuation of past policies cannot achieve these aims. Moderating the uneven allocation of benefi ts and costs that naturally results from market forces without crippling the development process will require well- planned intervention by the Government. It will require the deliberate opening up of the production, trading, and utilities sectors to domestic and foreign private enterprises; facilitating aff ordable fi nancing of private investment; training skilled workers for well-planned emigration; enhancing the effi ciency of public sector operations; and improving governance of socially sustainable urban settlements.

Promoting and Financing the Private Sector

The Changing Balance between the Public Sector and the Private Sector

Economic commentary on Kiribati invariably notes the heavy presence of public enterprises in a large number of sectors where, in other countries, private enterprise 96 Kiribati Social and Economic Report 2008 would normally do well—marine services, fuel supply, insurance services, hardware retailing, boatbuilding and chandlery, interisland fi sh transport, biscuit making, hotels, copra crushing, and general stores. Public enterprises also control public utilities, telecommunications, the domestic airline, port operations, the Betio–Bairiki causeway, and development banking and home fi nance. Less widely reported but growing steadily, however, is a pervasive and lively private sector engaged in public transport, motor vehicle importing, building construction and light engineering, garage businesses, wholesale and retail stores, bakeries, restaurants, boatbuilding, guest houses and rental accommodations, computer services, Internet cafés, music and entertainment, tailoring and dressmaking, domestic fi sheries and export of bêche-de-mer and aquarium fi sh, and licensed moneylending. On the other hand, there are few private accountants and lawyers and a complete absence of private medical practitioners, dentists, and pharmacies. Th e demand for private health services is in little doubt, as evidenced by the recent action of the Ministry of Health and Medical Services permitting government doctors to establish fee-paying clinics at the national hospital after offi cial hours. Private surgery/clinics and pharmacies in South Tarawa appear to be business opportunities with good potential. Successful businesses often are managed by a non-Kiribati family member, who is better able to resist the pressure of the bubuti (the request from a relative or friend that normally cannot be refused without damaging the relationship) on the assets of the business. Partly because of bubuti, many small businesses fail or operate in an insolvent state, but more are continually starting up. Th e private sector reaches across the borders of formality into informal activities— some of dubious legality—and generates income for households that is otherwise unnoticed in the economy captured by offi cial statistics. Th e history of the shifting balance between public and private enterprises in Kiribati provides a basis of optimism for the latter. Late in the colonial period, the British administration in Kiribati represented a socialist government in the United Kingdom with a predisposition to state control of the “commanding heights” of the economy and state provision of social services. Th at government also had historical and philosophical links with the cooperatives movement in organizing small consumers and producers. Broad-based distribution and avoidance of extremes of wealth and poverty underlay economic policy. Private sector businesses that existed in Kiribati then were foreign-owned coconut plantations in the Line Islands (now being considered by the state for resettlement), or belonged to families with some Asian or European participation by marriage and naturalization. Th us a combination of state-owned enterprises, consumer and producer cooperatives, and a handful of family-owned businesses developed Economic Response to Risk 97 during the 1950s, 1960s, and 1970s to meet the needs of the growing and soon to be politically independent nation of Kiribati. Monetization, education, contact with the outside world, growth of domestic savings and lending institutions, and increased family incomes from seafarers’ remittances brought many changes. Community loyalty to cooperatives was weakened by misappropriation of funds by society offi cials and poor business management by committees. Family ambitions and business skills grew, and access to money improved. More foreigners arrived,15 married, and went into business with their new families. Churches developed business arms, one of them very substantial.16 Public enterprises were criticized for poor service, ineff ective management, and consequent dependence on government for fi nancial support— generally linked to political involvement in decisions that tend to favor family and island relationships. Th e goal of equitable distribution seemed to be negated by the emergence of relative wealth and poverty, even though the resulting inequity was not on the scale found in countries with richer endowments of natural resources. Th e government strategy that evolved in response to these changes refl ects the concerns of a small and remote country with a growing population and employment problem, and a customary distaste for displays of wealth. Current government strategy combines continued public ownership of a small number of key activities—mainly the public utilities, seaports, airports, and fuel supply— with the intention of instituting stricter standards of accountability, effi ciency, and service delivery. Th e less strategic public enterprises (hotels, trading, and manufacturing activities) will be divested to private ownership. Private sector investment and development across a wider range of businesses of all sizes will be more actively encouraged as the most eff ective way of creating opportunity and access to a better quality of life. A more welcoming attitude toward foreign direct investment that will create employment and broaden the base of the economy is also part of current government policy. Th e recent opening of a branch of a major Fiji Islands fl our, rice, and sugar wholesaler in Betio was a welcome sign, apparently aimed at reducing the incidence of shortages of these staples. Also welcome is the opening of an outlet of Nauru’s largest multipurpose commercial enterprise at Bikenibeu.

15 For several years Kiribati passports were sold overseas to encourage immigration and investment.

16 Th e Kiribati Protestant Church (KPC) is a major force in the business sector, operating a ﬂ eet of three interisland vessels, including a much-in-demand 300-ton landing craft. KPC imports motor vehicles and exports scrap metal (an essential service for Tarawa), and runs the largest printing operation in the country. Provided KPC’s business activities do not hide behind its charitable status for tax purposes, these operations, employing over 120 persons, are a valuable part of the economy. KPC is reported to have opened a bank in June 2008 oﬀ ering services to the public, including slightly higher deposit rates than those available at the Bank of Kiribati (BOK). 98 Kiribati Social and Economic Report 2008

Intensiﬁ ed competition on quality and price across a wide range of goods will beneﬁ t the consumer and the economy.

Conditions for Private Sector Development

Th e conditions needed for accelerated development of private enterprise in Kiribati are similar for domestic and foreign investors:

(i) skilled and hardworking entrepreneurs with courage, business sense, and capital; (ii) access to overseas markets for inputs and outputs without tariff or nontariff barriers; (iii) domestic tax rates and structures that see businesses through to profi table maturity; (iv) government offi cials who understand and assist the legitimate needs of business; (v) regulations for licenses and work permits are administered transparently, honestly, and effi ciently; (vi) access to land with adequate security for its use as a bankable asset; (vii) reliable public utilities and communications services available at competitive cost; (viii) access to working capital and longer-term loan fi nancing at aff ordable terms; (ix) availability of employees with a good basic education and a commitment to work; and (x) competent, prompt, and honest services at air and seaports.

Most of these conditions are met in part, but some (access to land on bankable terms, and reliable utilities) hardly exist. Th e 10-point list reveals the importance of government policies and operations for development of the private sector. Th e Ministry of Commerce, Industry and Cooperatives (MCIC) is well aware of this and understands the need for change. It is currently undergoing reorganization to separate its promotional functions from its regulatory functions to improve performance. Eff orts are also under way to reform the cooperatives movement. Th e legal and administrative framework for cooperatives still exists, but consumer cooperatives have proven unable to compete with private shops. Attention is now focused on copra and fi shing, where there is thought to be scope for linking producer cooperatives at island level to government-owned commercial processing and exporting operations in South Tarawa. Care will be needed to ensure these Economic Response to Risk 99 links are transparently structured and effi ciently run, and that producers receive a fair price for their product. Many of the needs of business cannot be supplied by MCIC alone. Th e concerted eff ort of several ministries, public enterprises, local government, and fi nancial institutions will be required, with MCIC providing consultation, coordination, and encouragement. Th e ministry will have to exert considerable eff ort to create the necessary policy links. Th e role of local fi nancial institutions in fi nancing business is discussed later in this section. Box 2 describes a well-tried approach to securing land access and business premises at aff ordable and bankable terms.

Box 2: Business and Industrial Estates or Parks

Th e concept involves the development and subdivision of an area of land by a government agency (or a private developer) for lease to and use by a number of small and medium-sized enterprises as offi ces, workshops, factories, and research laboratories. Utilities and services are installed on-site ready for user connection, with payment only for consumption. In some cases, predesigned but adaptable buildings are erected and leased to users. In other cases, each tenant or user erects its own building. For a South (or North) Tarawa estate, several nonadjacent parcels of land might need to be acquired and developed, but placed under a single management and services arrangement. At Kiritimati, a single block could be designated and subdivided into serviced plots of various sizes. In Kiribati, this is the kind of development the Government would probably wish to manage itself through the Ministry of Commerce, Industry and Cooperatives. However, decisions on the allocation of sites should be made by offi cials applying transparent rules, not referred for political direction (a practice that has troubled Kiritimati development). In other countries, such developments are often designated as tax-free export processing zones, but the general reduction in taxes on trade has largely removed that as an incentive. Now, the speed of process, security of tenure, and assured availability of services would be the incentives that attract investors, domestic or foreign. A feasibility study by the Ministry of Commerce, Industry and Cooperatives would assess the practicality of such schemes. In Tarawa, the Government would need to acquire the right to lease the subdivided land to developers. In Kiritimati, the Government already owns the land. Th e existence of one or more such estates or parks would signifi cantly increase the likelihood of attracting private direct investment from existing or new investors.

Source: Author. 100 Kiribati Social and Economic Report 2008

Table 8: Number of Licenses Issued for Selected Business Categories in South Tarawa, 2006–2007 Tenainao (TUC) Betio (BTC) Total Category 2006 2007 2006 2007 2006 2007 General store 399 417 214 216 613 633 – with liquor 33 32 3a 21 35 53 license Public bus 180 190 170 219 350 409 Moneylender 32 38 12 17 44 55 Total 611 645 396 452 1,007 1,097 BTC = Betio Town Council, TUC = Tenainano Urban Council. a Although extracted from oﬃ cial records, this ﬁ gure appears incorrect.

Source: TUC and BTC license registers.

Private sector economic activity outside urban areas is largely limited to copra production; handicrafts and fi shing (most of which are carried out at the informal household or artisanal level); one commercial boatbuilding enterprise; and small, general-purpose shops (of which most villages have several). Private sector economic activity is mainly restricted to urban areas. Th is is where infrastructure and services are accessible and a critical mass of customers and employees is within reach. Towns are thus essential to economic growth and need to be planned and developed with this in mind. Private business thrives in South Tarawa and Kiritimati. Relevant statistics are sparse, but records of Tarawa’s two urban councils paint a credible picture of recent growth in general stores, public buses, and money lending (Table 8.) A striking feature of recent growth in Kiribati has been the increase in motor vehicles and the accompanying increase in fuel consumption and road accidents. Probably the fastest-growing business in the economy, the leading importer of new motor vehicles has seen its business expand from the yearly import of 10–20 new cars a few years ago to 60 in both 2006 and 2007; volume is expected to double in 2008. Th is trade is being fi nanced by commercial bank loans and, increasingly, by lease purchases through an off shore bank affi liate, with the purchasers’ equity funded by withdrawal of Kiribati Provident Fund savings or by seafarers’ remittances. Th e same fi rm is importing new buses at the rate of 50–55 per year. Th e buses are getting bigger—now up to 20–22 seats instead of 12–14—and costing around $50,000 each. Th e entire trade is in the hands of nationally owned private fi rms. Th e booming business in new vehicles accompanies the continuing import of used cars, buses, and trucks by individuals and fi rms. Maybe 10% of these vehicles will fi nd their way to Kiritimati and a handful to other islands. In due course, the disposal of wrecked or abandoned vehicles will have to be dealt Economic Response to Risk 101 with, but business initiative should fi nd a way. Ways have been found to export scrap metal (footnote 14). It is diffi cult to avoid the impression of a credit bubble about to burst, or at least lose a lot of air in light of rising fuel prices and maintenance costs. But for now, the buses are full, petrol pumps are busy, and traffi c is steadily building on the South Tarawa road system. Th ose Tarawa bus operators that survive the competition and build up capital will be looking for other fi elds in which to employ their funds and business skills.

Private Sector Self-help: Chamber of Commerce and the Paciﬁ c Islands Private Sector Organisation

Th e Kiribati Chamber of Commerce has 40–50 members, almost all in South Tarawa, with an informally affi liated Business Association in Kiritimati. Only two public enterprises (Telecom Services Kiribati Limited and Kiribati Insurance Corporation) are members of the chamber. Th e chamber estimates there are over 2,000 businesses in Kiribati eligible to join. Membership fees range from $50 to $150 per year. Th e chamber assists its members and business through regular and ad hoc discussions with the Government, particularly MCIC. Relations with the latter are reported to have improved in recent years. Th e value of chamber membership is augmented by (i) access to the Australian Business Volunteers scheme that helps local fi rms upgrade their operations, (ii) organized courses in basic business methods, and (iii) workshops on regional trade agreements that are coming into force. In 2006 during a shortage of rice in Kiribati, the chamber was temporarily designated sole importer of rice and put in charge of ensuring fair distribution— not a normal role for a chamber of commerce but an interesting insight into how the Government regards both the chamber and established rice importers. Th e chamber has joined the Pacifi c Islands Private Sector Organisation, which aims to draw Kiribati business people closer to those in other Pacifi c islands while they all grapple with the common issues of investment, trade, and relations with government, and help them establish regional and international connections.

Financial Institutions and Private Sector Development

Bank of Kiribati Th e Bank of Kiribati (BOK) is incorporated in Kiribati and owned by the ANZ Banking Corporation (75%) and the Government of Kiribati (25%). BOK 102 Kiribati Social and Economic Report 2008 originally was the Tarawa branch of the Bank of New South Wales, established in the 1960s. As a subsidiary of the ANZ Banking Corporation, BOK is subject to prudential and anti-money-laundering regulations and supervision of Government of Australia authorities. BOK is presently the only commercial bank in Kiribati, providing comprehensive banking services from its head offi ce at Bairiki and branches at Betio and Bikenibeu in Tarawa and in Kiritimati. Every enterprise and household in Kiribati with any fi nancial assets or liabilities has some dealings with BOK, and its business policies and interest rate structure are of great importance to private sector performance. Because Kiribati uses the Australian dollar and private funds move easily in and out of the country, BOK interest rates in Kiribati move broadly in line with rates in Australia, with the wider margins between deposit and lending rates commonly found in Pacifi c island countries. Th e bank lends for a wide range of business and domestic purposes, but the diffi culty of using land and moveable assets as security means that most lending for business is done against cash fl ow performance. For individuals, lending is against deductions from salary, with upfront equity provided by partial withdrawal of Kiribati Provident Fund balances. In September 2007, the bank’s total assets of just under $70 million represented liabilities of about $57 million and capital and reserves of about $12 million. Individual depositors and corporate customers held around $56 million of deposits with the bank. BOK’s loan portfolio underwent a drastic alteration in mid-2007 when the Government of Kiribati came under criticism in Parliament for fi nancial mismanagement, and drew on the Revenue Equalisation Reserve Fund (RERF) to repay a $30 million BOK overdraft that had accumulated as a kind of unoffi cial term loan over several years. After repayment of the overdraft, the balance of BOK lending abruptly dropped to around $27 million, comprising borrowing by individual and corporate customers, and representing a more than 50% cut in BOK’s interest-bearing domestic loan assets. A genuinely fl uctuating overdraft for the Government with BOK in the range of zero to $5 million makes sense, and will no doubt reemerge in 2008 or 2009. However, it will take some time to rebuild the balance of BOK’s portfolio with other forms of commercial lending, presenting BOK with a considerable challenge.

Development Bank of Kiribati Th e Development Bank of Kiribati (DBK) has a balance sheet of just under $10 million, with loan assets of $9.6 million (against which it has made provisions for bad and doubtful debts of about $1 million) and about $1 million in cash. It has long-term loan liabilities totaling $4 million, representing external funding from ADB and the European Investment Bank, and net assets or equity of about Economic Response to Risk 103 the same amount. DBK is considered a good source of small loans, and has about 3,000 loans outstanding with an average balance of $3,200. By steering clear of politically driven lending for big projects, DBK has avoided the pitfalls that have destroyed government-owned banks in several Pacifi c island states, and has played a key role in the growth of business in Kiribati. Th e bank was originally organized along traditional lending-and-recovery lines, and managed to keep the value of loans in arrears to 8%–9% of the portfolio. In 1997, on the advice of international consultants, DBK embarked on an extended experiment with “relationship banking,” in which nonperforming loans were to be nursed back to health. After 4 years in which loans in arrears climbed to 25% of the value of its portfolio, DBK abandoned relationship banking, and in 2003 went back to a lending-and-recovery structure. Loans in arrears are now down to 11% by value of the portfolio and falling. DBK is feeling confi dent enough that the bad debt problem is under control to again be looking for new business. DBK is well positioned to help with private sector growth, provided bank management remains sound. In collaboration with MCIC and the Ministry of Environment, Land and Agricultural Development (MELAD), DBK is encouraging development of investment projects for fruit (pandanus and banana) growing, processing, and preserving using small-scale equipment for the domestic market. As in other Pacifi c islands, the medicinal shrub noni (or nonu) grows well in Kiritimati, and small-scale, low-cost production of the foul-tasting but health- giving drink from the plant may be commercially viable. Th e existing copra mill already has the capacity to produce plastic bottles. Also, at the medium-scale involving simple technology, DBK has supported investment in the production of fi berglass catamarans in Tarawa for export to Australia. At a larger scale and potentially involving much greater exposure, DBK is promoting the upgrading of Betio shipyard. Th e bank is fi nancing the design of the upgrading by a Japanese architect. For the funding of the engineering works, however, DBK will need cofi nanciers (the Government of Kiribati could well contribute) as well as a fresh line of credit from the European Investment Bank or similar source. A similar assessment applies to DBK’s plans for involvement in fi nancing improvements in interisland shipping. While the shipping sector is clearly important, lending on the scale envisaged is risky and complex, and has been the source of serious diffi culties for other Pacifi c island development banks. DBK will need to move cautiously in cooperation with stronger partners.

Kiribati Provident Fund Th e Kiribati Provident Fund (KPF) is the main savings instrument in the Kiribati economy. Th e fund has almost 47,000 members (about 68% male), made up of present and past employees of formal public enterprises and private sector 104 Kiribati Social and Economic Report 2008 businesses and organizations. Membership grew by an average of 6% annually in 2001–2005, more than three times as fast as total population growth. Compulsory contributions by employers and employees and restrictions on withdrawals resulted in accumulated contributions to member accounts exceeding $92 million by September 2007. KPF stated that assets include $97 million invested in fi nancial markets overseas, $10 million on term deposit with BOK in Tarawa, and the value of the fund’s commercial plaza in Bairiki. Audited accounts for KPF for 2003–2006 were not available, however. Th is lapse was, according to KPF, because of staff changes and absences of management staff on training and leave. In most countries, this would have led to public outcry and demands for removal of those responsible. In Kiribati, however, a high degree of tolerance for underperformance in the public sector prevails. Nonetheless, the amount of personal savings at risk is very large and the delays in accounting to membership should be cause for serious concern. Th e lack of audited accounts is particularly disquieting as KPF is on the verge of investing fund proceeds in a real estate development comprising a $13-million offi ce and shops block in central Bairiki for occupation by government and commercial tenants. Other signifi cant domestic lending is contemplated. Th is will take KPF into territory where it has little experience as it competes for lending opportunities with other fi nancial institutions. Th e risks are quite diff erent from investing in fi nancial markets through professional fund managers. It is important that the Government of Kiribati, as the ultimate trustee of the public interest and the fi nancial system, take a close look at any KPF proposals to depart from the conservative and risk-averse path that has served it well up to the present. KPF should obtain independent expert advice before making policy and contractual commitments to fi nance projects. Fortunately, there has been no suggestion that KPF should lend money to the Government of Kiribati. Th e recent relaxation of rules governing access to KPF contribution accounts now enables partial withdrawals from accounts at age 45. Such relaxation of rules is common by provident funds to enable home purchase before retirement. In this case, however, the rule change appears to be facilitating the current explosion in motor vehicle imports. As these vehicles will incur mounting maintenance and fuel costs within a few years, it is not clear that the rule change is in the best interests of KPF members. An investigation into what actually occurred in a sample of partial withdrawal cases may be informative.

Village Banks Two very diﬀ erent kinds of ﬁ nancial institutions make Kiribati unique in the region. One is the RERF, discussed later in this report, worth over $600 million and held by the Government as trustee for the nation. Th e other is the network of 177 village banks on 23 islands with a revolving fund averaging Economic Response to Risk 105

$11,500 per bank, held by their managing committees as trustees for village communities. Th e village banks were founded about 15 years ago by the Government with help from the Secretariat of the Pacifi c Community to provide small-scale credit under local control. A seed-money grant was provided, along with a set of basic rules and training for management committees. Th e overall program is administered by the Rural Development Division of the Ministry of Internal and Social Aff airs (MISA), and stands out in the region as an early initiative in the fi eld of microfi nance. Successful banks, with a record of timely interest and loan repayments and growth of their revolving fund, have been rewarded additional grants. Th e aggregate value of the revolving funds of all 177 banks is just over $2 million. Th e largest funds amount to around $35,000, and the smallest around $3,500. Twenty-one banks have revolving funds of over $20,000. About 4,600 loans are currently outstanding, averaging 26 per bank, with an average loan size of $445. According to MISA records, about 30% of all loans by value have failed and been written off , with a total loss of funds of under $600,000. Under village bank rules, defaulting borrowers are barred from further borrowing. MISA rates the banks by the quality of their record keeping and timeliness of reporting. About 80 banks are rated very good or excellent, and a similar number are rated poor. Performance levels between and within islands vary widely, the critical factor reportedly being the quality of village leadership and the ability of senior persons forming the management committee to exert pressure on borrowers to repay on time. Th e village bank program has had failures as well as successes, but overall it has functioned well and continues to do so. It has enabled the start or expansion of small businesses by many hundreds of entrepreneurs, the proper equipping of village fi shers, the purchase of tools and equipment for water supply systems, and the payment of school fees for hundreds of children. In many rural communities, it also has helped strengthen and maintain village leadership in a monetizing environment—not an easy task. All this has been done at remarkably low cost in public funds and staff time of the MISA.

Marine Resources

The Importance of Fisheries

“Th e lifestyle of the people of Kiribati revolves around the sea,” the annual report of the Kiribati Fisheries Division of the Ministry of Fisheries and Marine Resources Development (MFMRD) states (MFMRD 2006, 1), and evidence 106 Kiribati Social and Economic Report 2008 abounds that this is so. Th e Kiribati language has a particularly rich vocabulary covering marine plant and animal life, the condition of lagoons and the ocean, and relations between humans and the sea. Th e oral history and legends of Kiribati are full of marvelous doings, fearful events, and romantic adventures in and on lagoons and the ocean. Th e average Kiribati household consumes between 45 and 50 kilograms (kg)17 of fi sh per month—caught by family members or bought at roadside markets. In a typical year, between 30% and 40% of government revenue come directly from the licensing of fi shing vessels to access the tuna fi shery in the Kiribati exclusive economic zones (EEZs). Clearly, what Kiribati does to make maximum use of its marine resources, while minimizing the development risk, has great social and economic signifi cance in both the immediate future and the long term. Th e importance of marine resources policy also is obvious; it is unique among government portfolios. It extends from responsibility for an important aspect of the country’s external relations to the levying and collecting of over one third of government revenue, and from conservation of Kiribati’s principal natural resource and basis of many urban and rural livelihoods to the availability of fresh, healthy food on the table of the poorest families. At each level and as they confront each issue, those responsible for fi sheries and marine resources policy and planning have an extraordinarily heavy responsibility. Th ey have to build institutional links and negotiate support for their policies without losing sight of the goal of sustainable development of fi sheries in the best interest of all the people of Kiribati.

Ocean Fishery

Th e area of Kiribati’s three EEZs18 total about 3.5 million square kilometers (km2), almost 5,000 times larger than the country’s land area. Th e United Nations (UN) Convention on the Law of the Sea gives coastal states control over all the resources of their EEZs, subject to certain obligations to allow managed exploitation. For Kiribati, the most important resources currently exploited are the stocks of certain tuna species that inhabit the EEZs and adjacent high-sea zones—skipjack, yellowﬁ n, albacore, and bigeye tuna. Th ese stocks are harvested oﬀ shore by foreign purse seine and longline vessels19 and exported to processing plants and markets overseas. Part of the catch of purse seine vessels is transshipped

17 MFMRD (2006). Estimated at 241 grams per person per day by statistical surveys in 2000–2003. 18 Surrounding (i) the Phoenix Group, (ii) the Gilbert Group (in the west), and (iii) the Northern Line Group and Southern Line Group (in the east).

19 Two very diﬀ erent types of ﬁ shing vessels and gear used to catch tuna. Economic Response to Risk 107

in Tarawa port to fi sh carrier vessels. In the region as a whole, the skipjack tuna resource has so far not appeared to be under pressure from excessive fi shing, but stocks of yellowfi n, albacore, and bigeye tuna are reported to show signs of such pressure. Responding to the need for a unifi ed management regime for these highly migratory fi sh, the Western and Central Pacifi c Fisheries Commission (referred to hereafter as the Tuna Commission) was established at Pohnpei, Federated States of Micronesia. Tuna Commission membership is made up of the coastal states—which are also members of the Forum Fisheries Agency (FFA)—and distant water fi shing nations. Th e fundamentally diff erent interests and attitudes of these two groups of countries present the Tuna Commission with great problems in formulating and implementing a unifi ed management regime for high-seas zones and EEZs. It is not yet certain whether the Tuna Commission can actually become an eff ective force in Pacifi c tuna resource management. Th is uncertainty is aff ecting the behavior of those coastal states with substantial tuna resources (often referred to as the Parties to the Nauru Agreement), and may also be coloring the medium-term plans and investment strategies of the major commercial fi shing operators. In parallel with establishment of the Tuna Commission, changes are occurring in the way EEZ access is allocated and sold. Th ese changes are the outcome of several years of study and negotiation under the aegis of FFA. Th e tuna resources of Kiribati’s EEZs are presently harvested by 250–300 foreign fi shing vessels of all types, licensed annually under a multilateral treaty with the United States (US) and bilateral arrangements that allow foreign fi shing vessels multiple access to the main tuna-bearing EEZs along the equatorial belt. Foreign fi shing vessel movements under these arrangements are recorded and reported by an FFA–administered vessel monitoring system. Kiribati has in recent years received $25 million–$27 million annually in access fees and other charges, including $6 million–$7 million a year from the multilateral US access treaty. Th e average annual composition of the foreign fi shing fl eet licensed to fi sh in Kiribati’s EEZs in the most recent 3-year period for which data are available is shown in Table 9. In 2006, the total catch reported in Kiribati’s EEZs by the fl eet described above was 130,000 tons (t) of all tunas, of which 80% was skipjack. Access fee revenue received in 2006 by the Government of Kiribati was $26.6 million, an average of $205/t (across diff erent species of very diff erent market values). After a trial period during 2007, the vessel-day system for licensing purse seine vessels is now being adopted. Th e aim is to stimulate competition by limiting access, thus raising the price while maintaining viable fi sh stocks. 108 Kiribati Social and Economic Report 2008

Table 9: Licensed Foreign Fishing Vessels in the Kiribati Exclusive Economic Zones: Annual Average, 2004–2006 (Number)

Type of Fishing Gear/Vessel Total Vessels all Gear Types Distant Water Pole Fishing Nation Purse Seine Longline and line Number % of Total PRC30031.0

European Union 34072.5

Japan 35 3 1 39 14.0 Republic of 28 108 0 13 49.0 Korea New Zealand 30031.0 Papua New 10010.5 Guinea Taipei,China 32 45 0 77 28.0 United States 14 0 0 14 5.0 Total 119 160 1 280 100.0 Percent (%) 43.0 57.0 0.3 100.0

PRC = People’s Republic of China.

Source: Ministry of Fisheries and Marine Resources Development (2006) and Forum Fisheries Agency.

Total permissible access by purse seiners to the estimated sustainable yield of the EEZs of Pacifi c island countries has been divided into about 34,000 vessel- days.20 Kiribati has been allocated 6,200 vessel-days (just under one fi fth of the total), which it hopes to sell at a rate per day signifi cantly higher than it has been receiving in purse seine access fees. Th e vessel-day system is new, and it remains to be seen at what prices there will be takers for the various national quotas. In Kiribati, the administrative and vessel monitoring arrangements must be geared up for data analysis and revenue collection under the new access regime. With a large aggregate EEZ and few other sources of income, Kiribati has always been very protective of its right to decide how the resources of its EEZs should be harvested. Kiribati often has appeared uncomfortable with FFA or other regional coordination of access, preferring to act independently in what the Government of Kiribati sees as the national interest. For example, Kiribati was the fi rst island state to license European Union (EU) purse seine vessels, which enabled them to fi sh in other Pacifi c island country EEZs under standing arrangements, whether the other countries liked it or not. Similarly, in 2007

20 Larger vessels count for 1.5 vessel-days. Economic Response to Risk 109

Kiribati triggered renewed concern by licensing purse seiners from South America (not included in Table 9). Actions such as these were criticized as weakening regional solidarity in this key policy area of shared natural resource management, causing Kiribati to be viewed with suspicion and treated with reserve by other FFA member countries.21 More recently, in a clearly positive move, Kiribati took the internationally acclaimed step of declaring the Phoenix Islands Protected Area (PIPA), with a 60-mile exclusion zone around the Phoenix Group. (Th is is described later in connection with development of the Line and Phoenix islands.) It is worth noting that the PIPA, large although in conservation terms, occupies only 5% of Kiribati’s aggregate EEZ. Kiribati’s readiness to adopt the vessel-day system may indicate its greater acceptance of the benefi ts of Pacifi c island countries acting together. It may indicate a growing realization that conditions across the Pacifi c are liable to alter as the ocean warms and its level rises. Th e 3–5 yearly cyclical of the El Niño and La Niña sea temperature phenomena that infl uences the weather, sea temperatures, and the whereabouts of migratory tuna along the equatorial belt is liable to become more pronounced. Th is likelihood arguably strengthens the case for collaborative management of neighboring EEZs as well as adjacent high-seas zones under the purview of the Tuna Commission. More limited groupings of adjacent zones for management purposes may be more eff ective than trying to deal with the whole of the central and western Pacifi c in a single scheme.

Domestic Tuna Investment

Th e Kiribati public enterprise Central Pacifi c Products Limited (CPPL) operated a Japanese-donated pole and line tuna vessel for many years, but the lack of live bait22 in Kiribati prevented the operation growing into a viable enterprise. Kiribati has tried, so far without success, to attract private direct investment in onshore tuna processing for export. Attempts have been made to interest competent investors in establishing a loining (partial processing) plant at Betio, which could be supplied by foreign fi shing vessels licensed to fi sh in Kiribati EEZs and required to land a portion of their catch at the loining plant at an export- parity price. Th e example of Majuro, Marshall Islands, where a tuna loining plant under foreign ownership has recently been reopened and expanded, keeps hope

21 Australia, Cook Islands, Fiji Islands, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, New Zealand, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tokelau, Tonga, Tuvalu, and Vanuatu.

22 Live bait is small fi sh kept live in a large tank on pole and line vessels to be thrown in the water around the boat to attract tuna, which are then caught while in a feeding frenzy with stout fi shing poles with short lines and barbless, hooked lures. 110 Kiribati Social and Economic Report 2008 alive in Tarawa. To date, however, the positive factors of ready availability of fi sh, low-cost labor, and the Government’s off er of land and other assistance have not overcome investor concern about the reliability and cost of utilities (power and water) and the cost of shipping the fi nished product to its very distant market. Th e possibility of such investment remains on the table in the strategic context of promoting foreign commercial investment. Th e main development risk, highlighted by previous bogus investment proposals, is that more might be given away by the Government in incentives than would be gained in domestic economic activity. Th e Government should use reputable technical and legal assistance in any negotiations with prospective investors. CPPL occupies prime sites in the ports at Betio and Kiritimati. In Betio, it processes locally caught tuna into frozen loins on a sub-commercial scale. From Kiritimati, it transports outer island fi sh to Tarawa and exports marine products to Honolulu. Th e company has twice been rescued fi nancially by the Government and reconstructed, and appears to require periodic injections of Japanese aid to sustain itself. Based on its weak commercial performance, it should not be used as a vehicle for larger-scale investment by the Government, or even as an input to a joint venture. It would best be sold to a local entrepreneur with proven business experience and commercial aims.

Domestic Food and Commercial Fishery

Th e outer islands are well supplied with fi sh caught on a subsistence or sale- of-surplus basis by households. At Kiritimati, however, there is a confl ict between household and sports fi shers over the netting of bonefi sh in lagoons. South Tarawa provides a thriving market for locally caught fi sh, which is landed and sold at roadside from portable insulated boxes or delivered directly to kitchens by dozens of household fi shing enterprises. Th is market also is supplied with fresh fi sh from the neighboring atolls of Abaiang, Maiana, and Marakei. Frozen fi sh from the outer islands further supplement South Tarawa market supplies, brought in by CPPL and sold at its three fi sh shops. However, these supplies tend to be of lower quality and erratic availability. Several aid-funded projects have attempted over the past 30 years to set up refrigerated fi sh collection and shipment centers on the outer islands. A number of these centers have been closed and abandoned for lack of business management skills, maintenance, and commitment by local communities and government agencies. Four out of six installations established in the 1990s with EU aid were still operating in 2007. Th e latest and, it is hoped, the best-planned scheme has established centers at Arorae, Beru, Onotoa, and Tamana, supported by Japan’s Overseas Fisheries Cooperation Fund. Marine products from these centers, as Economic Response to Risk 111

well as from those funded by the EU, will be collected regularly by a CPPL vessel. Fishing cooperatives are being established to run these centers on a commercial basis. It remains to be seen if they can succeed this time. Business and related skills certainly have risen in the intervening years. As with most outer island installations, the crucial test will be adequate attention to regular maintenance and replacement of equipment and machinery. MFMRD’s Fisheries Division has made detailed surveys and acquired thorough knowledge of fi shing activities in Arorae, North and South Tarawa, and Tamana. Th e division administers an extraordinarily complex licensing system covering all kinds of fi shing activities, sells a wide range of fi shing gear, and generates a stream of revenue for the Government. In the spirit of the statement quoted at the start of this section, the division appears to give good value to the fi shing community, and not only in islands where ice-making centers have been established or reestablished. Th e division off ers a comprehensive curriculum of courses in fi shing skills, basic navigation, fi shing gear, and outboard motor maintenance designed to support and improve fi shing performance and safety. With the support of the Fisheries Division, fi shing households supply 100–150 t annually of good quality fresh fi sh to the South Tarawa urban population at competitive prices (MFMRD 2006). As elsewhere in the Pacifi c, this supply is periodically augmented and the market disrupted by the sale locally of tuna and by-catch from purse seine vessels which are in port to transship their catch to carrier vessels anchored at Betio. Th is fi sh is of inadequate quality for transshipment, and thus is sold at low prices through various intermediaries and eagerly bought by lower-income households, low-cost restaurants, and persons organizing large feasts. However, the generally positive food supply picture is threatened by human population growth and the advance of technology. Th ey threaten the sustainability of inshore and reef food fi sh stocks, and are emerging as a development risk. According to the Fisheries Division (MFMRD 2006, 2):

….our coastal marine resources are slowly deteriorating. Less catch and smaller fi sh caught, and a number of species that are even disappearing off reefs are evidence of this. Th is is a common phenomenon that is occurring world wide, due to a number of factors. Overly effi cient fi shing equipments such as scuba, underwater torches, gill nets, outboard motors and freezing facilities enable larger catches. Attractive international markets add to the over exploitation of our coastal marine resources. An ever-increasing population also adds pressure through higher demand and destruction to marine habitats by destructive fi shing and increased human waste. 112 Kiribati Social and Economic Report 2008

To the degree possible within its limited budget for inshore and reef resource monitoring—and now in collaboration with the environmental monitoring of MELAD—the Fisheries Division is documenting the deterioration of inshore food fi sh stocks and disseminating this information to the fi shing community. Th e desired response is public understanding and acceptance of the need for restraints on catches to levels that are sustainable. If achieved, public understanding and acceptance could be reinforced by establishment by the Government and island councils of marine protected areas or closed seasons, or a combination of both. Experience so far has not been encouraging. Marine protected areas established in North Tarawa and in Kiritimati to protect bonefi sh—very valuable as sport fi sh for catch-and-release by tourists but easy to catch with gillnets—have been largely ignored by local fi shers. More work with communities is needed. Without strong public support for marine protected areas, enforcement is not feasible. With support, however, they have been shown elsewhere in the Pacifi c to work well. Th ey have enabled overfi shed and endangered stocks to recover and be maintained at biologically sustainable levels, and provide a reliable, managed harvest for subsistence and sale.

Aquaculture

Black Pearls Kiribati began investigating the culture of black pearls in 1995. Th e example of French Polynesia and Cook Islands showed that pearl oysters could be farmed and pearls harvested in lagoon waters of Pacifi c islands. With assistance from the Australian Council for Industrial and Agricultural Research, which engaged James Cook University to provide technical support, a 10-year program of fi eld surveys, research, and production trials was undertaken to establish the feasibility of pearl production in Kiribati. A hatchery was established at the Fishery Division headquarters at Tanaea, and fi eld trials were set up in potential oyster farming sites at Abaiang, Butaritari, and Onotoa. Th e process involves collecting and growing young oysters (“spat”) to a size where injection of a small particle into the oyster causes it to form a pearl growth around the intrusion, and the husbandry of the growing oyster until the pearl is ready for removal. Th e process is problematic at several stages, some biological (e.g., many spat die, not all oysters grow pearls, and water conditions may be unsuitable for growth), and some caused by humans (e.g., inexpert insertion of the particle, irregular maintenance of farms, and theft of growing oysters). All these problems have aff ected the Kiribati project. After an encouraging start and the harvest of a number of pearls of marketable quality, the project has Economic Response to Risk 113 experienced several diffi cult years and its future appears uncertain. Th e Fisheries Division assumed full responsibility for the project in 2007, and funding and staff resources for additional work to overcome identifi ed problems are reported to be inadequate.

Seaweed Th e culture of seaweed for export was developed with ﬁ nancial assistance from the EU. Atoll Seaweed, a public enterprise, was established to propagate the growing of seaweed, purchase it, and export the dried product. After an initial period of high hopes that seaweed might replace copra in several islands, expectations have been reduced by the realities of high transport costs and low export prices as other producers have increased their output. In Tabuaeran, which had emerged as the leading island for seaweed production, competition for household attention from cruise ship tourism (described later) has reduced seaweed production. Th e history of seaweed in Kiribati is similar in some respects to that of ventures elsewhere that seek to exploit a niche market opportunity on the basis of what appears to be a comparative advantage derived from resource endowment. However, the industry is unable to compete with bigger and better-placed suppliers whose subsequent entry drives down prices below the smaller producer’s cost of production. Th e Government has been subsidizing seaweed prices in a way similar to the subsidy of copra—but on a much smaller geographical scale—to encourage seaweed as a livelihood in outer islands. Th is has propped up production, and Kiribati still exports small quantities of dried seaweed, mainly from Tabuaeran and Kiritimati, where it makes a useful addition to household incomes. Th e industry has not, however, fulﬁ lled the hopes originally held for it.

Ambo Project In 2004, the tidal ponds east of Parliament at Ambo were allocated to a technical mission dispatched by Taipei,China for development of an aquaculture research and experimental station in collaboration with the Fisheries Division. Substantial infrastructure has been constructed, and programs are under way to (i) culture and distribute milkfi sh to farmers for further growth as food fi sh for sale; (ii) establish the feasibility of commercial prawn cultivation, recognized to be one of the most diffi cult types of aquaculture in the Pacifi c; and (iii) develop fi sh quarantining techniques to support the export trade in aquarium fi sh.

Temaiku Integrated Farm Th e old fi sh ponds and surrounding earthworks at Temaiku, which were originally intended to grow bait fi sh for a local pole-and-line tuna fi shery, have been resurrected under the control of the Fisheries Division with technical and 114 Kiribati Social and Economic Report 2008

ﬁ nancial assistance from Japan’s Overseas Fisheries Cooperation Fund. Th e project now operates as Temaiku Ecofarm, an integrated aquaculture–agriculture enterprise supplying ﬁ sh, chickens, eggs, and pork to the local market on a semicommercial basis (i.e., sales revenue covers direct operating costs).

Line and Phoenix Islands

Th e immense distances separating Tarawa from Kiritimati and Kanton combined with the limited sea and air transportation mean that the six-person Fisheries Subdivision at Kiritimati operates with considerable delegated authority. It has important functions in the management of export and sport ﬁ sheries—where both the Kiritimati business community and resident population are very active—and in the eﬀ ort to enforce marine protected areas in the vast network of Kiritimati Island lagoons.

The Pet Fish (Aquarium) Trade and Other Fisheries Th e catching and live export of decorative fi sh destined for private aquariums is an important business that is entirely in the hands of the private sector. In a typical year, about 150,000 fi sh with an export value over $1 million are harvested and exported by air to Honolulu by nine locally owned fi rms, all based at Kiritimati; two fi rms account for over half the trade. Th e fi shery depends on regular air service from Kiritimati to Honolulu. Th is service, as noted elsewhere in this report, is currently being provided by Air Pacifi c at substantial cost to the Government (several times larger than the earnings from pet fi sh). Th ere are applications for more licenses to operate in the pet fi sh trade, but pressure on the resource is evident, particularly on the most valuable and popular species fl ame angel (Centropyge loriculus). Th is species alone accounts for 70% of exports, and divers already must go further and dive deeper than in the past. Th e Fisheries Division plans to introduce a quota system for the species, but feels handicapped by lack of scientifi c knowledge of the stock and its biological parameters. Central Pacifi c Producers Limited, the government-owned fi shing company based at Tarawa, operates a new Japanese-funded cold store at Kiritimati and handles lobsters and fi nfi sh for export by air to Honolulu and Tarawa (there is an overnight connecting fl ight via Nadi, Fiji Islands, and many Tarawa visitors take fi sh on ice back with them). Two private fi rms also export lobsters, fi n fi sh, shark fi ns, and sea cucumbers (bêche-de-mer).

Sport Fishery Th e foundation of the tourist trade in Kiritimati is sport fi shing. Together with cruise ship visits at Tabuaeran, it constitutes virtually all of Kiribati’s true tourist Economic Response to Risk 115 sector. Th e targets are bonefi sh in the lagoons and larger game fi sh in the ocean. Although the ocean fi shing is usually excellent, there are other good ocean game- fi shing areas in the region with better shore facilities. Th e main draw at Kiritimati is the lagoon fi shery. Th is attracts a breed of fi shers who are generally content with basic facilities so long as the fi shing is fabulous. While fi ne specimens of other species are also caught, it is the bonefi sh that make Kiritimati particularly attractive. Bonefi sh are individually fi shed with light tackle and specially prepared lures, and are famous for fi ghting vigorously to avoid capture. Th e fi shing in Kiritimati attracts fi shers from around the world, but especially from the US. Unfortunately, bonefi sh are easily taken in large quantities with gill nets, and the increasing population of Kiritimati is doing just that, despite the eff orts of the six-man Fisheries Subdivision to prevent it. Properly managed, enough fi sh of all kinds are available to feed Kiritimati’s growing population and support an expanded sport fi shery, but the sport fi shery is presently getting the worst of it. Via the internet, the US and international sportfi shing fraternity communicate with each other and stay well informed of conditions at Kiritimati. As a result, the number of visiting fi shers has been declining steadily over the last 10 years, from over 1,000 in 1999 to less than 400 in 2006. As part of the development of Kiritimati, it is very important that ways are found to embed protection of the lagoon sport fi shery in the community ethos and governance of Kiritimati, turn around the decline in bonefi sh stocks, and get the good news out to sport fi shers in the US and elsewhere.

Mineral Resources For administrative convenience in the government bureaucracy of Kiribati, mineral resources is grouped with marine resources under MFMRD. Additionally, because of the nature of minerals-based activity and the coincidence of MFMRD’s role as the focal point for links with the Pacifi c Islands Applied Geoscience Commission (SOPAC) for technical assistance in the mapping of coastlines, the Environment and Lands in MELAD are strongly connected with MFMRD activities involving mineral resources. Th ree issues are currently of concern in Kiribati policy concerning minerals resources. Th e possibility of mining the residual phosphate on Banaba Island (Ocean Island) left from the mining operations from 1900 to 1979 continues to fascinate the Government as a potential source of employment and revenue. Apart from doubts about the commercial and technical feasibility of residual mining, environmental, fi nancial, and political issues with the people of Banaba remain, such that no way forward has yet been found. It seems likely that this potential will remain in limbo unless and until residual mining gets under way in Nauru, and the technical feasibility of residual mining is fi rst established there. 116 Kiribati Social and Economic Report 2008

A project for dredge mining of construction aggregates from a site adjacent to the western channel to Tarawa lagoon is close to implementation. Feasibility studies have been completed and funding is available from European Development Fund under the current Lomé Convention. Th e executing ministry is MELAD, but MFMRD will be closely involved in monitoring the physical impact of the project. Technical assistance will be provided by SOPAC. Seabed mineralization is being discovered and mapped across the central and western Paciﬁ c, and technology for extracting seabed and subsea and/or subterranean minerals is being developed. Th e possibility of commercially valuable deposits being found within Kiribati’s EEZs means that the Government needs to keep abreast of developments in exploration and mining techniques. Th e Government must be ready to engage independent expert assistance from the UN or Commonwealth sources to support a Kiribati negotiating team as soon as there is a hint of interest—commercial or diplomatic—from potential developers.

Land, Subsistence, and Commercial Agriculture

Land

Th e absolute scarcity of land imparts special value and far-reaching importance to land in Kiribati society. Apart from being a means of production and a basis of sustenance, land also has social and political signifi cance as a source of identity, wealth, and standing in the community. In a destabilizing consequence of increasing monetization in Kiribati, rights to land have become a saleable commodity. Th is is especially true in South Tarawa, where indigenous landowners have parted with their land for cash or for access to other family assets. Th e pressure of population growth on the limited supply of land has long been identifi ed as one of the main risks facing people living in the Gilbert Group. Th ere is historical evidence that people there were aware of the problems of overpopulation before regular contact with the outside world and devised various strategies to curb population growth so as to avoid outstripping resources (Bedford and Macdonald 1982). By 1940, when the population was just over 31,000, the colonial administration recognized that there was a problem of “land hunger”— where individuals and families were deemed to have insuffi cient landholdings to support their present and future livelihood. Surveys identifi ed families in several islands of the Southern Gilberts as experiencing land hunger. Th e colonial administration responded by encouraging migration to less populated islands of the Central Gilberts; by the settlement of the newly annexed Phoenix Islands; and Economic Response to Risk 117

later—in the face of prolonged drought in the 1950s and 1960s—by resettlement from the Phoenix Islands and Southern Gilberts to Solomon Islands. Th e easing of population pressure brought about by these organized resettlements lasted only two decades. By 1970, as the population had grown to 52,000, the specter of population growth outstripping available land and resources once again reared its head. Th is time the colonial administration responded with a concerted family planning campaign. Th e result was a signifi cant reduction in the population growth rate, but the campaign was sustained for only 3 years. Th e resourcing, intensity, and success of this campaign have never been repeated in family planning eff orts in post-independence Kiribati. Issues relating to land in the urban and rural areas (or outer islands) of Kiribati diff er. In urban areas, the primary land issues are outlined as follows:

(i) Th e demand for land outstrips supply. Because almost all of the land in the urban centers of Bairiki, Betio, and Bikenibeu is leased by the Government, there is a shortage of land for development in these centers. (ii) Illegal occupation of government-leased and state lands on South Tarawa is increasing. A major contributing factor is the incompatibility in landowners’ understanding of their traditional rights, and the provisions of land laws such as the Land Planning Ordinance 1977 and the Foreshore and Land Reclamation Ordinance 1977. Many landowners, whose land on South Tarawa is being leased by the Government, grant rights to others to use and live on their already leased land—especially accretions to that land. (iii) Land disputes are on the increase as migrants from outer islands with historical claims to land on South Tarawa contest the rights of registered landowners as they attempt to gain land to live on. Th is situation has worsened with the growing migration to South Tarawa over the years and the destruction by ﬁ re of land registers for Tarawa in the 1980s. Copies of these registers held in the National Archives and the Land Management Division are not up to date, and because of this, disputes will continue.

In the outer islands, land issues derive chieﬂ y from (i) outdated principles of traditional land tenure in the face of increasing population; (ii) changes in attitudes toward land, which dilute dependence on land as a source of sustenance; and (iii) out-migration, especially among the economically active part of the population. Th e principal problems are outlined as follows: 118 Kiribati Social and Economic Report 2008

(i) Excessive subdividing and the smaller size of plots due to the practice of land tenure principles which provide for land to be subdivided among heirs. Consequently, the size of plots is not only small, but unproductive in many cases. (ii) Fragmentation of landholdings, again because of land tenure practices where a person’s holdings are scattered all over an island. (iii) Absentee ownership and idle lands, caused largely by out-migration from the outer islands and, in some cases, by the diﬃ culties of elderly landowners to access scattered holdings located some distance from where they reside. With no one to look after such land, it may become unworked, unproductive, and overgrown. Parcels may shrink in size as owners of neighboring land encroach. A policy change some years ago abolished land taxes and introduced in its place a tax on copra production. Th is has contributed to the neglect of land by owners and caretakers, and the inability of island councils to monitor unutilized and unproductive lands.

Th e administration of land on South Tarawa and the outer islands is ineffi cient. Many land registers are not updated regularly with title changes and court decisions. Land leased by government often is the subject of disputes among off spring of original owners, who remain the registered owners after death. Another common problem in South Tarawa and the outer islands is the lack of backup copies of offi cial land registers and records. Where land records have been destroyed accidentally by fi re, record reconstruction has resulted in the inevitable new and contestable claims, and more disputes. Th e impacts of climate change and past infrastructure development (e.g., causeway construction, reef passages, and foreshore mining) on land is emerging as an issue that will add to the interaction of government and citizens in the future, especially as landowners become more aware of these impacts. Such heightened awareness is causing landowners to challenge developments initiated by island councils and government in fear of potential negative impacts. Landowners also are beginning to attribute coastal erosion aff ecting their land and construction such as causeways to climate change. Th is could lead to claims for compensation from the Government.

Subsistence

Subsistence in its purest form—where people live by consuming what they produce—no longer exists in Kiribati. Th e 2005 census reported that 51% of the population lives in the rural sector—in the Gilbert Group and in two islands in Economic Response to Risk 119

the Line group—leading a way of life that is partially subsistence. Th eir livelihood is based mainly on coconut, breadfruit, and a narrow range of other agricultural produce, fi sh, and other seafood. Th is is supplemented by cash from the sale of a small surplus of fi sh, copra, seaweed, handicrafts, and other products. Other sources of cash include land rents and remittance income from family members on Tarawa or abroad. Data from three censuses (1995, 2000, and 2005) and two household income and expenditure surveys (1996 and 2006) showed a clear trend away from the subsistence lifestyle of the past and increasing dependence on cash for food and day-to-day basic necessities (Kiribati National Statistics Offi ce 1996, 2002, 2006, and 2007). Fewer and fewer households were recorded each census as growing traditional food crops. In 1995, for example, 9,103 households reported having breadfruit trees; by 2000, the number of households had dropped 23% to 6,978. Th e number of households increased slightly in 2005, but was still much below 1995. A similar declining trend for other food crops is evident between 1995 and 2005. Th e average annual household income in Kiribati by income source and island group is shown in Table 10. Th e Central Gilberts and the Line groups have higher income levels than the Northern and Southern groups. Th e Central Gilberts are close to South Tarawa and enjoy regular shipping links. Th e Line groups have more resources and opportunities for income generation. Th e striking diff erences in income levels are certainly among the reasons people are moving to the Line Islands and South Tarawa. Th e data also indicate that, while subsistence activities are the main source of income in the outer islands,

Table 10: Average Annual Household Income in Kiribati by Island Group ($)

South Northern Central Southern Line Income Source Tarawa Gilberts Gilberts Gilberts Islands Total Wages and salaries 5,419 1,208 1,813 1,254 3,683 3,095 Agricultural and 477 920 2,148 824 1,927 955 fi sh sales Remittances 1,157 678 568 559 840 837 Subsistence 1,674 2,326 1,760 1,110 3,485 1,880 activities Imputed rent 2,161 736 727 507 703 1,218

Other income 576 721 799 676 1,707 760 Total 11,646 6,589 7,815 4,931 12,345 8,745

$ = Australian dollars.

Source: Kiribati National Statistics Offi ce (2006). 120 Kiribati Social and Economic Report 2008 they accounted for 35% of total household income in the Northern Gilberts, 23% in both the Central and Southern Gilberts, 28% in the Line Islands, and 10% in South Tarawa. A closer look at the general pattern of household expenditure in the outer islands reveals an even clearer picture of outer islands’ dependence on cash for food and basic necessities (Figure 14). Food alone accounts for just over half (52%) of household expenditure on the outer islands, while in South Tarawa, food accounts for 42% of total expenditure (Kiribati National Statistics Offi ce 2006). Most food available for sale is imported, making for a substantial degree of dependence on imported food and a major risk to the outer island lifestyle because of its vulnerability to external forces. Th is is now much evident in the public outcry from the outer islands every time there is a shortage of imported foods such as rice, fl our, and sugar. Th ese foods now form a predominant part of the staple diet of outer islands residents. Dependence on imported foods also is a major cause of lifestyle diseases such as diabetes, high blood pressure, anemia, and night blindness.

Figure 14: Annual Household Expenditure by Expenditure Group in Kiribati (% of Total)

Other Expenditure 13% Education 4% Tobacco and Housing Alcohol 13% 3% Travel and Transport 6% Clothing 1%

Household

Operation 8%

Food 52%

Source: Kiribati National Statistics Oﬃ ce (2006). Economic Response to Risk 121

Th is dependence, the associated threats to food security and health, and vulnerability to external forces will, on the basis of present trends, increase rather than diminish as a result of a number of related factors:

(i) changes in dietary habits which appear to be irreversible, especially among the young, who prefer imported foodstuﬀ s to more nutritious local food; (ii) rapid disappearance of certain methods of preparation associated with local food; (iii) abandonment of traditional food crops; (iv) diminished numbers of the younger and economically active segment of the population in the outer islands, aﬀ ecting the capacity of households to grow and harvest food crops on scattered landholdings; and (v) increases in the cost of imported food and inadequate opportunities for earning cash.

Successive governments have accepted the challenge of expanding income- earning opportunities in the outer islands to enable the purchase of imported foods and other goods and services. Th e results in most islands have not been striking, except for the impact of the copra subsidy. In certain locations, cruise ship tourism and seaweed cultivation have had a substantial impact. As part of improving outer island income earning opportunities, the Government is committed to

(i) reviewing existing arrangements for the sale of outer island products on Tarawa with the object of ensuring that outer islands producers are benefi ting from these arrangements, particularly in timeliness of payments; (ii) increasing opportunities for more outer islanders to earn income from the export of marine products—such as bêche-de-mer and shark fi ns—by encouraging and supporting stronger involvement of the private sector and ensuring, through sustained monitoring, that optimum returns are received; and (iii) promoting access to capital on the outer islands through microfi nance mechanisms for small-scale community-based development.

Th e Government also hopes that additional opportunities for employment outside Kiribati will contribute to improving outer island life by raising cash remittances to families living there. 122 Kiribati Social and Economic Report 2008

Agriculture

Prospects in Kiribati for development of commercial agriculture and the agriculture sector in general are constrained by the harsh environmental realities of the country, which include infertile soils and poor rainfall. Added to these is the constraint imposed by customary land tenure, under which almost all land is held in the Gilbert Group, which includes Tarawa and most of the population. Future agricultural production is likely to be adversely aff ected by climate change in several ways, including the eff ects of erosion, increased contamination of ground water by saltwater incursion, and drought. Individually or in combination, these eff ects will further undermine already-constrained agricultural production. Th e principal commercial agricultural activity is the coconut industry. An estimated 11 million coconut trees occupy approximately 70% of the land area of Kiribati, with an average density of nearly 15,000 trees per km2. Th e main coconut products—copra, crude coconut oil, and copra cake meal—had an export value of $2.7 million in 2004 and accounted for 85% of the country’s total export of local commodities that year. Th e same year was the highest level of copra production since 1970, at 12,334 t. Production dropped around 50% the following year, probably refl ecting the mopping-up of a backlog of ripe nuts the year before. Th e heavily subsidized copra industry is the main source of income in the outer islands. Th e Government is committed to maintaining the current price of copra of $0.60 per kg, and the subsidy required to maintain this price will continue to be budgeted. Th e Agriculture and Livestock Division of MELAD estimates that 46%, or 5 million, of the 11 million coconut trees in Kiribati are senile and unproductive. Th e division is planning a coconut replanting project for the replacement of senile trees. Commercial utilization of senile coconut trees will also be explored. In the northern islands of Butaritari and Makin, the main agriculture activity is banana production. Apart from valuable assistance provided for freight costs, banana production is not supported by government and is driven by individual entrepreneurial eff orts. Banana growers sell their produce for $1.00–$1.20/kg to middlemen on the islands, who then arrange for shipment to the market in Tarawa where they are sold for $3/kg. Sea freight amounts to $7 per bunch, which is refunded by the Government on the production of receipts. Mindful of the contribution of agricultural production to food security, the Government has taken steps to encourage production of indigenous food crops using organic farming. Farmers’ cooperatives have been set up on most islands, and are managed independently by the farmers themselves. Th e technical mission of Taipei,China is actively promoting home gardening of vegetables in South Tarawa and some outer islands, as well as aquaculture Economic Response to Risk 123

(milkfi sh farming) and livestock (especially pig) farming. In 2007, a total of 1,065 households in Tarawa and outer islands were provided with seeds and technical advice; 49 households, mostly in Tarawa, were assisted with milkfi sh ponds; and 20 households in Tarawa received assistance with pig farming. As part of its long-term strategy, the Agriculture and Livestock Division is planning a major project with the aim of promoting and planting stable food crops known to be resilient to the harsh atoll environment and which have traditionally sustained people in Kiribati. Crops included are breadfruit, pandanus, coconuts, bwabwai (giant taro), bero (fi g), and other fruit trees. Styled the “Green Revolution,” the project cost is estimated at $5 million over 5 years. It will involve the collection and propagation of planting materials, training of communities for participation, distribution of planting materials in the outer islands, and actual planting. For this project to succeed, the performance of agricultural extension offi cers will be critical. Th e number of extension offi cers currently is inadequate to support the project in all the inhabited islands of Kiribati. Th e Government is likely to seek donor support, which will require careful evaluation in the light of climate change and other long-term trends casting doubt on the viability of agricultural livelihoods on several outer islands.

General Economic Activity

Manufacturing

Th e limited amount of manufacturing in Kiribati is undertaken largely by public enterprises. Th e Kiribati Copra Mill Company produces coconut oil that is heavily subsidized through an artifi cially low price for its purchase of copra (a price signifi cantly below the export price). Th e mill is experimenting with the production of soap and higher-value coconut oils, as well as the use of coconut oil as biofuel. Cabin biscuits are produced by Tarawa Biscuits Limited in an operation that remains profi table with the help of high tariff protection, but nonetheless faces increasing competition from imports from Fiji Islands. Betio Shipyard Limited has built a small number of vessels for the domestic market in recent years, usually on order from local councils and donor fi nanced. Some staff have undertaken training at a shipyard in Taipei,China. Central Pacifi c Producers Limited is packaging fi sh on a trial basis, but has not established a viable market for the product. Some small-scale manufacturing activities take place in the private sector processing food, preserving local fruits, building boats (two catamarans have been exported to Australia), and producing garments. Most of these enterprises are borrowers from the Development Bank of Kiribati. Th e Kiribati Protestant 124 Kiribati Social and Economic Report 2008

Church is involved in the production of exercise books, with garment production the focus of some of its community work. In the period just before and after independence, national development plans placed some emphasis on the promotion of import-substituting manufacturing activities. Experience showed, however, that most activities would not be viable without high levels of protection and other support. Th e emphasis of more recent national development strategies has been on improving the business environment in Kiribati, leaving it to the private sector to determine what businesses could be viable. Th is approach has not always been accompanied by the necessary follow- through by government in terms of measures to level the playing ﬁ eld for private businesses versus public enterprises.

Construction and Engineering

Major Projects Many of the major construction projects undertaken in Kiribati in recent decades have been undertaken by one fi rm: Dai Nippon Construction. Commencing with the Betio–Bairiki causeway 30 years ago, the fi rm has been active up to the present, including the recent redevelopment of Betio Port, the new parliament building, and the roadwork now under way in Bairiki, Betio, and Bikenibeu. Its established presence and knowledge of the market has given this fi rm an advantage in securing major construction projects. Another fi rm with foreign investor status, Ca’Bella Betio Construction Limited, also has undertaken substantial construction projects, including new buildings for the Kiribati Institute of Technology and several church school buildings. Work on junior secondary schools was undertaken by an Australian fi rm with foreign investor status, but this fi rm ceased operations after it was unable to secure additional work. Continuity of work is a primary concern for all these fi rms. Ca’Bella Betio Construction Limited is winding back operations due to lack of new contracts.

Local Capacity A number of local fi rms are involved in construction and engineering. Th ese fi rms carry out offi ce construction and renovation works, the building of maneabas and private homes, and engineering works, such as construction or repair of fuel storage tanks and subcontracting on larger civil works projects. Local fi rms fi nd it diffi cult to prequalify for larger projects, including aid- funded construction works, because of the small scale of their operations and their lack of access to capital to fi nance expansion. However, their knowledge of the market gives them a clear advantage in bidding for small to medium-sized Economic Response to Risk 125

jobs, and there should be more opportunity for them to work with international contractors on major jobs. Betio Shipyard Limited has a slipway capable of handling maintenance work on small vessels, and has interest in expanding the capacity of the slipway. As noted previously, the Development Bank of Kiribati is providing initial support to this project. Th e Government has expressed its intention to facilitate economic growth through development of the private sector. However, local construction and engineering fi rms face a number of obstacles, some of which could be addressed through policy changes. Commercial and industrial power charges are necessarily high in Kiribati,23 but they are higher than they would be if power charges did not cross subsidize water charges, and if commercial and industrial power users did not cross subsidize domestic users. A more fl exible power tariff , taking into account the impact of usage on peak demand, might be benefi cial to local construction and engineering businesses. Th ese businesses would also benefi t from more competitive access to fi nance (which may materialize with the reduction in Government of Kiribati overdraft borrowing, noted previously), and if services at the port were more business friendly. An opportunity to strengthen private sector participation in construction and engineering appears to have been rejected recently. Planners for EU-funded investment in dredging of aggregate from deeper waters in the Tarawa lagoon (for sale to the public in place of beach-mined aggregate) were directed by the Government to establish a new government-owned corporation for the dredging operation, rather than use an existing or new private fi rm.

Housing

Kiribati Housing Corporation Th e stock of houses for ministers and permanent secretaries was returned to the control of the Government in 2001. Th e Kiribati Housing Corporation (KHC) manages a stock of around 1,100 houses on South Tarawa for rent to government oﬃ cers. KHC cannot meet the demand for housing, so its stock is allocated on the basis of a points system that takes into account such factors as seniority, salary, marital status, and number of children. Rents are controlled by the Government and have remained unchanged since 1994, with predictable eﬀ ects on the funding of maintenance and new construction. Payment to KHC of rents deducted from salaries also is delayed at times. Th e housing stock is deteriorating, and KHC

23 Th ere is a long lag in the impact of higher international oil prices on electricity prices in Kiribati because the public enterprise handling fuel distribution is constrained in passing on increases by government directives. While this slows increases in electricity tariff s, it builds up unsustainable losses for the fuel distributor. 126 Kiribati Social and Economic Report 2008 generates insuffi cient revenue to carry out adequate maintenance and meet other operating costs. Maintenance is undertaken in priority sequence, with only the most urgent work done due to lack of funding. Maintenance is carried out using local contractors, with KHC acting as contract supervisors. KHC plans to build new housing on South Tarawa if funding can be found. Making use of land allocated by the Government, KHC erected three prefabricated houses on a trial basis in 2006, and had plans to complete another 10 in 2007. KHC uses its own workforce, which works with the contractors supplying the prefabricated houses. KHC would like to initiate a major program for replacement of its housing stock, but is unlikely to be in a position to support the needed borrowing in the absence of a more market-oriented approach to rents. However, a project document for the program has been submitted to the Government. KHC is also considering involvement in the housing market in Kiritimati. Th is proposal, which is at an early stage of development, could involve taking over the existing stock of around 300 government houses and building 80 new houses. Should the proposal advance, it is important that it is linked with the broader planning activities underway for development of Kiritimati as a growth center. In addition to managing a stock of housing, KHC operates a lending scheme for fi nancing private home construction. Borrowers can secure loans up to $40,000 to build homes using their contributions to the Kiribati Provident Fund or other assets (although usually not land) as security. KHC provides technical advisory support to borrowers using the scheme. However, the scheme lacks capital and is unable to keep pace with demand. KHC’s lending department also manages other loans, including those under a scheme for fi nancing home toilets and water tanks set up under the Sanitation, Public Health, and Environment Improvement Project.

Private Housing Market Considerable expansion has occurred in construction of private housing of varying standards in South Tarawa, driven by population growth and urbanization.24 Access to land is needed to build a house, and a market for land to supplement land owned traditionally does exist.25 Th e market for privately owned rental accommodation also is growing, tapping demand for housing from expatriates and others without access to land. Th is market appears to be a good income-earning

24 Th e 2005 census indicates that 43% of South Tarawa households live in “permanent” housing (concrete ﬂ oors and walls, and sheet metal roofs), 24% in local housing (usually pandanus pole frames, pandanus thatch roofs, and coconut thatch panel walls), and 33% in some combination of the two.

25 Th e 2005 census found that 57% of South Tarawa households live on family-owned land, while 29% live on leased land. Economic Response to Risk 127

opportunity for those with access to land in South Tarawa, and development of the market should be encouraged.

Urban Planning Urbanization of Kiribati is advancing, with half of the population now living in the urban areas of South Tarawa and Kiritimati. Th e 2005 census revealed some slowing in the rate of in-migration to South Tarawa, suggesting that perceptions of the beneﬁ ts of moving there may be changing. However, the rate of migration to South Tarawa remains above the rate of increase in national population, and the urban population of Kiritimati is growing at a faster rate. Overcrowding and the inadequacy of infrastructure and services in South Tarawa are reducing the quality of life there to worrying levels. Likewise, lack of planning and expansion of infrastructure and services for urban development in Kiritimati are threatening its fragile environment. Th e Government recognizes the need to plan for urban growth, and development partners are assisting with preliminary work on a national urban renewal program. Th e expeditious advance of this work is important to arrest deteriorating conditions.

Import Trading

Th e level and range of activity in the import trading sector, along with the commercial operation of buses and the commercial supply of fresh fi sh to urban consumers, refutes the suggestion that engaging in commercial activity is somehow “un-Kiribati.” Over 1,000 shops—more than one for every 100 persons—dealing in imported goods operate throughout Kiribati at varying levels of fi nancial turnover and sophistication. Th ey range from a handful of wholesale and retail businesses with a multimillion-dollar turnover, branch operations, and up to 100 employees, down to hundreds of village shops operated by the owner in a small purpose-built structure or through a modifi ed window in the owner’s dwelling. In the 1960s and 1970s, the cooperative movement—backed by the colonial government—dominated import-trading activity in Kiribati at wholesale and retail levels, and handled the purchase and export of copra. During the 1970s, a massive eff ort was made to convert the government-controlled semi- cooperative organization to a multipurpose development authority operating several semiautonomous business arms along commercial lines. Th ese were intended to be privatized later. Th is eff ort ultimately failed, but remnants of that structure are still visible as the public enterprises Bobotin Kiribati Limited and Kiribati Copra Cooperative Society (KCCS) Limited, both of which may soon disappear. A few retail and savings cooperatives survive, but since the 1980s the 128 Kiribati Social and Economic Report 2008 consumer cooperative movement has lost most its earlier importance. It has been replaced by the rise of large-scale, family-based private businesses at wholesale and retail levels, and family shops at village level. Th e latter often are funded by seafarers’ remittances or involuntary savings (late wages) by workers returning from employment in Nauru. At the same time, however, moves are afoot within the Ministry of Commerce, Industry and Cooperatives to revive and strengthen producer cooperatives in rural fi sheries and in the copra industry. In the latter, KCCS may merge with the copra mill, leaving island-level copra purchasing to producer cooperatives or private operators, according to local preference. It is not yet clear what structure will emerge. Th e cooperatives administration is currently dormant. An important development in the trading sector in 2007 was the opening of a wholesale and retail outlet in Betio by one of Fiji Islands’ largest enterprises. Th is marked a shift in policy of the Government of Kiribati toward encouragement of competition in hitherto protected areas of the economy. Subsequently, the largest private trading enterprise in Nauru also began operations in South Tarawa. Th ese investments by substantial regional fi rms are regarded locally as a welcome sign of confi dence in the economic outlook for Kiribati. Th e result should be keen competition between the new arrivals and the larger local businesses in the pricing and quality of goods and services.

Tourism and Hospitality

Recreational tourism—overseas visitors traveling on holiday to spend several days or weeks in the country, as distinguished from visits by friends and relatives of residents and business and donor visitors—makes only a small contribution to the economy of Kiribati. Air arrival data are incomplete (Appendix 1, Tables A1.11– A1.13). Interpolating these data for 2001–2005, however, half of the annual average of 4,400 visitors arriving at Tarawa and Kiritimati (equivalent to 85 arrivals per week) were on business (including that of government and aid donors), and a quarter were visiting friends and relatives. Fewer than 10% of total visitors were tourists. Th e economic impact of business visitors, and to a lesser extent visiting friends and relatives, has some aﬃ nity to that of tourists without the purely recreational activities. Th e expenditure of business visitors on accommodation, meals, land transport, and telecommunications is similar to that of tourists. Th is has supported increased private investment in hotel and guesthouse accommodations, hire cars, and restaurants noted elsewhere in this report. Visiting friends and relatives also provide a useful although smaller boost to hospitality sector expenditures. Economic Response to Risk 129

Two specifi c forms of tourism, namely sport fi shers visiting Kiritimati and cruise ships calling at Tabuaeran, have had a signifi cant impact on the economy of these two islands, and have the potential to continue to do so. In Tabuaeran, the economic and cultural eff ect of cruise ship tourism has substantially altered the island. But numbers of cruise ship visitors to Tabuaeran and sport fi shers visiting Kiritimati have been declining in recent years. Both activities are vulnerable to domestic and external risks. Th e growing population of Kiritimati is eating the bonefi sh sought by sport fi shers and threatening the unique land-based birdlife that gives Kiritimati further potential for niche ecotourism. Th e US’ legal restrictions that helped make Tabuaeran a viable port of call for Norwegian Cruise Line’s (NCL) cruises out of Hawaii using foreign-owned cruise vessels will not apply to the US-owned cruise vessels now entering service for NCL. Th e future impact of this change is not yet clear. As a tourist destination, Kiribati has the attractions of being remote, little visited, culturally and physically unique, and off ering a sense of achievement to the few tourists who successfully visit the country and meet the people. But for most visitors, the journey to Kiribati is costly and time consuming. Facilities for tourists regarded as normal elsewhere are absent or unreliable and expensive, the realities of internal travel make no concessions to visitors in comfort or cost, and health services are diffi cult to access and limited in scope. Kiribati is not on the way to anywhere else, and as a fi nal destination it suff ers from many drawbacks. Kiribati must be realistic about the potential of tourism to assist national social and economic progress to avoid dissipating eff orts and resources only to be disappointed with the outcome. Kiribati cannot compete in the mainstream of international tourism and should not attempt to do so. Th e cruise ship market is self-propelled and will continue, perhaps develop, or not, according to factors largely outside the control of Kiribati. But by targeting niche (i.e., small, specialized, and tolerating higher costs) tourism markets that relate clearly to identifi ed natural attractions, and with good planning and eff ective controls on activities that threaten these attractions, Kiribati can off er unique experiences for tourists who are adventurous and interested enough to make the journey and can aff ord the (mainly distance-related) costs. Th ese possibilities relate principally to the Line and Phoenix islands and the marine and other wildlife found there. Th e design and control parameters for the social and economic development of Kiritimati and the nature reserve status of the Phoenix Group are discussed later in this report. Th e Government will have to be directly involved in enforcing comprehensive protection of both areas, and in promoting investment in the kind of accommodation and transport infrastructure that does not destroy the assets it exploits. 130 Kiribati Social and Economic Report 2008

Potentially, a few thousand holidaying tourists each year (50 or so a week, between fi ve and 10 times as many as now) could be visiting Tarawa and the Gilbert Group. Th ey would make use of accommodation, hospitality, and transport facilities that now are mainly patronized by people visiting friends and relatives, business and government and donor traffi c, and local residents. Although tourism currently does not drive the hospitality sector, the improvement of sector facilities in recent years has both assisted and benefi ted from the modest tourist trade.

Utilities, Transport, and Infrastructure

Essential Ingredients for Economic Growth

Th e availability and cost of utilities, transport services, and public infrastructure exert a strong infl uence on the viability of productive activity in Kiribati. Provision of utilities and infrastructure is undertaken largely by the public sector, although in telecommunications there is the prospect of greater private sector participation in service provision. International transport services are provided mainly by private operators, with some involvement of the public sector in international shipping and some fi nancial intervention in international air services. Public sector involvement in domestic transport services is substantial, with growing participation by the private sector in shipping. Urban bus services are a private sector domain. Kiribati’s small size, remoteness, and diffi cult operating environment make utilities, transport services, and infrastructure expensive and subject to disruptions in service. Th is, in turn, makes Kiribati a diffi cult place for business activity, but at the same time highlights the need for effi ciency and innovative solutions in the provision of these essential services. Investment in utilities and infrastructure has risen sharply in recent years, and the current state of services and facilities is at a relatively high point in historical terms. However, there is little evidence that these investments can be sustained, and some deterioration in service levels can be expected as the investments depreciate. Kiribati also is reasonably well served by transport services at present. But here, too, past experience has shown that conditions can quickly change because of dependence on a few vital operations.

Utilities—Struggling to Keep Pace

Water Th e Public Utilities Board (PUB) operates a reticulated water supply system in South Tarawa, sourced from groundwater lenses in the Bonriki and Buota areas. Economic Response to Risk 131

Capacity is very limited, and the supply is rationed through a metered delivery system. Households connected to the system pay a ﬂ at fee of $10 per month, although usage charges may be introduced in the future. Larger users already pay for usage. PUB advises that there are roughly 5,000 connections to the system, but only around half of these households pay for the service.26 PUB consequently does not recover the full cost of system operation, and there is an understanding that revenues from electricity services will cross-subsidize water supply. Th e reticulated water system was upgraded recently under the ADB Sanitation, Public Health and Environment Improvement Project (SAPHE), improving production, storage, treatment, and distribution components of the system (ADB 2007b). Despite substantial investment, constraints associated with water resources and the technology adopted resulted in community expectations not being fully met. Decline in the number of connections since completion of system upgrading is evident because of disconnections and vandalism. Th e need to modify public attitudes toward proper treatment of utilities is recognized by the Government, but little progress has so far been made in this direction. Th e low capacity of the water supply system is a constraint on many forms of economic development. Th e fact that the system is unable to keep pace with the urbanization of South Tarawa means that many urban dwellers continue to use open wells in settled areas where the groundwater is contaminated. Protection of the water source for the system also is a pressing issue because of settlement pressure on the catchment area. While this has been a diﬃ cult problem to address, it is understood that action is under way to evict illegal settlers. Th e Ministry of Line and Phoenix Islands Development is responsible for water supply in Kiritimati Island, which is discussed later in this chapter.

Sanitation PUB operates a sewerage system that covers the main urban settlements on South Tarawa (Bairiki, Betio, and Bikenibeu). Th e system is driven by seawater pumps, and outfalls take the waste beyond the ocean reef into deep water. Th e sewerage system was rehabilitated under the SAPHE project, but it was not extended to cover urban areas on South Tarawa where septic tanks and traditional methods of waste disposal prevail. Households connected to the sewerage system are not charged, and a subsidy amounting to just under $0.5 million per annum is paid by the Government to PUB to cover operational costs. Th ere are no plans to extend the system.

26 Th e 2005 census indicates that 67% of South Tarawa households (3,512 households) have piped water as their main source of drinking water (Kiribati NSO 2007). 132 Kiribati Social and Economic Report 2008

Solid waste management was also addressed under the SAPHE, with some success in inﬂ uencing community attitudes and increasing recycling. However, problems are being experienced with the operation of landﬁ lls built or rehabilitated under the project.

Power PUB also provides electricity to South Tarawa using power stations at Betio and Bikenibeu with aggregate installed capacity of 5.45 megawatts (MW). Peak demand has reached just over 5 MW, while the demand normally averages 3.8 MW. Heavy investment in the system in recent years has provided new generators and a new power station at Bikenibeu, enhanced the distribution system, and strengthened the maintenance regime. Japan and Australia funded much of this investment. Despite system improvements, disruptions to power supply continue to occur and customers fear a return to earlier times when such disruptions were both commonplace and extended. Current operations do not inspire confi dence that the generation and distribution system can be maintained and replacement equipment fi nanced when necessary. Power tariff s are high by regional standards, with commercial and industrial customers paying $0.47 per kilowatt-hour, and domestic customers paying $0.34 per kilowatt-hour. Even so, the utility operates at a loss. While PUB can raise tariff s, under the law, in practice this is considered a sensitive decision requiring referral to Cabinet. While PUB’s monopoly position means that some regulation of prices is warranted to encourage effi ciency and adequate standards of service, the utility needs to recover legitimate cost increases. Delays in passing on such increases reduce funds available for maintenance and are in themselves a drain on effi ciency. In the outer islands, small solar power utilities are being established by the Solar Energy Company Limited, a public enterprise, with funding support from the EU. Th is approach appears to be successful in terms of appropriateness of technology, but cost recovery is insuffi cient to sustain operations. Households pay $9 per month for the cost of installation and maintenance. Th e company believes prices need to be gradually raised to $14 per month to break even. Pricing of this service is subject to referral to Cabinet, and a reluctance to approve increases is evident. Th e Ministry of Line and Phoenix Islands Development is responsible for power supply in Kiritimati Island, which is discussed later in this chapter.

Telecommunications Telecom Services Kiribati Limited, a public enterprise, operates ﬁ xed line telephone, mobile phone, and internet services in Tarawa and Kiritimati. Th e same Economic Response to Risk 133 range of services in the outer islands—with 10 islands covered in the ﬁ rst stage— is expected upon completion of system upgrading using satellite technology and radio links. Th e company estimates an additional 3–5 years is needed to complete this network, and some donor support is being sought. Th e upgraded network will be a major step forward in the standard of service for islands currently relying on high frequency radio networks. In South Tarawa, mobile phone and internet services are being upgraded to more modern technologies. Th e incumbent operator has been criticized over the years for high charges and poor service. Competition is probably the best way to address these concerns. Television Kiribati Limited, another public enterprise, is already providing some competition in internet services in South Tarawa, and privately run internet cafés are beginning to appear. Th e Government has approved a foreign investor to deliver mobile phone and internet services in Kiribati, with ambitious plans to improve services and extend coverage. Market competition should intensify if these plans are realized.

Transport Services Strive to Maintain Links

Domestic Air Services Th e state-owned Air Kiribati Limited is the sole provider of domestic air services in Kiribati. Th e airline serves the Gilbert Islands with two aircraft, and provides ground services and support for international services at Bairiki airport in Tarawa and in Kiritimati. Frequency of service to outer islands varies from one to three fl ights per week, depending on the volume of traffi c. Both aircraft were fully serviceable at the time of writing, although services were disrupted in the recent past when the main aircraft underwent extended maintenance in Australia. Th is caused a signifi cant reduction in services to the outer islands. Th e airline incurs substantial losses and fares have not been adjusted for a lengthy period. Th is is another case where price changes are referred to Cabinet and where reluctance to grant increases is extreme. Th e Government and the airline need to evaluate the cost of community service obligations associated with serving uneconomic routes separately from costs associated with the commercially viable aspects of the business (there may be few of these in the absence of more realistic fares). A transparent mechanism for the Government to subsidize community service obligations could then be agreed upon. Th e domestic airline is far from being an independent commercial operator. A considerable amount of government support is channeled into domestic airline operations, with the capital cost of aircraft, major servicing, training, and radio equipment funded through the Government recurrent and development budgets. 134 Kiribati Social and Economic Report 2008

Air Kiribati Limited is interested in acquiring additional aircraft, but clearly lacks the capacity to fi nance any acquisitions. One proposal is to base an aircraft at Kiritimati to serve the Line Islands, which would require rehabilitation of airstrips. It is diffi cult to see suffi cient volume of traffi c to support the proposed service.

International Air Services Kiribati is served by twice-weekly services to and from Nadi, Fiji Islands by Air Pacifi c, and weekly service to and from Brisbane, Australia via Nauru and Solomon Islands by Our Airline. Th e Government also contracts Air Pacifi c to divert a weekly Nadi–Honolulu service to stop at Kiritimati, providing a better solution to servicing Kiritimati than the previous approach of charter fl ights from Honolulu. Kiribati receives a block of seats on the Air Pacifi c fl ight as part of this deal, which are marketed through travel agents by the Government. In terms of frequency and seat capacity, Kiribati currently receives a high level of international air services. However, these services are expensive. Th e cost of the Nadi and Kiritimati services, in particular, has raised concern. For the fl ights to Nadi, Kiribati may be well served by supporting Our Airline in its bid to gain access to Nadi via Tarawa, provided there is suffi cient traffi c to sustain the additional service. For the Kiritimati diversion, its cost may be reduced through more aggressive negotiations. Air Kiribati has indicated an interest in code sharing with Air Pacifi c on fl ights to and from Nadi. Th is would require Air Kiribati’s installation of a computerized reservation system, and may not have much impact on fares if, as is likely, Air Pacifi c marketed seats at a price aligned with its own fare structure. Air Kiribati ventured briefl y into international air services in 2003 with a leased aircraft (an ATR-42) and services to and from Nadi. Th e stimulus for this venture was the frequent disruption of services to Kiribati at the time. Th e venture proved very costly, with issues relating to landing rights and the suitability of the aircraft for the route (passengers opted for the larger and faster Air Nauru aircraft which was also operating on the route), indicating a lack of thorough planning. Th e venture was terminated after considerable losses and further termination costs.

Domestic Shipping Services Kiribati Shipping Services Limited (KSSL), a public enterprise, provides the backbone of domestic shipping services in Kiribati. KSSL currently has only one ship serving the Gilbert Islands. It runs four routes, each covering four islands at a frequency per route of roughly once every 2 months. A second ship has been serving the Line Islands since 2006, with annual losses thought to be roughly $400,000 subsidized by the Government. Th e vessel undertakes trips between Economic Response to Risk 135

Tarawa and Kiritimati from time to time depending on the volume of cargo and passengers and the availability of the vessel. Th e Kiribati Protestant Church operates three ships through Kiribati Inter-Island Shipping Services that concentrate on the Southern Gilbert islands. Included is a landing craft that is in high demand for movement of machinery and construction materials. In addition, there is a signifi cant and growing number of private shipping operations using a range of smaller vessels. Cargo rates and fares set by KSSL tend to be applied by other operators. Interestingly, KSSL was able to get approval for a substantial increase in freight rates in 2006, despite initial opposition from the Government. Shippers to the outer islands benefi t from a freight subsidy (fi nanced from a levy on imports), which aims to keep prices of imported goods in the outer islands as close as possible to those in South Tarawa. Delays in collection of copra from outer islands have been an issue in recent years, although cash fl ow problems faced by KCCS in paying for freight have been as much a part of the problem as the unavailability of shipping.

International Shipping Services Th e main international shipping service to Kiribati is operated by the Swire Group from Australia via the Fiji Islands. Service frequency is roughly every 35 days. Reliability is good, although freight rates are considered high. Cargo handling is slow because the ship unloads at anchor onto barges pulled by tugs. KSSL ﬁ nanced acquisition of a new vessel to operate a Fiji Islands–Tarawa freight service. Th is service is providing a degree of competition for the Swire Group, although the capacity of the KSSL vessel is much smaller. Th e Government is seeking ways to increase competition in international shipping to Kiribati. Attracting the Paciﬁ c Forum Line to Kiribati continues to draw interest, although there does not appear to be any immediate prospect of this happening. Th e concept of Tarawa operating as a transshipment port for Nauru, Tuvalu, and Wallis and Futuna is being studied, although its feasibility might be questioned. In a move to increase revenue rather than improve shipping services, Kiribati has established an international shipping registry utilizing a Singapore-based agent. Around 80 ships have been registered, and the Government anticipates a useful revenue stream if the scheme expands. Th e scheme appears to entail risks associated with (i) the need to ensure that the costs of running the registry are commercially competitive and that the Government of Kiribati receives in full the revenue to which it is entitled; (ii) the need to provide competent registry services to attract reputable shipowners; (iii) the possibility of adverse publicity arising from involvement of a Kiribati-registered vessel in illegal activities; and 136 Kiribati Social and Economic Report 2008

(iv) the possibility of insurance claims arising from loss of or damage to a Kiribati- registered vessel, or damage caused by a Kiribati-registered vessel. Th e Government needs to guard against these risks by actively monitoring registry operation and comparing its performance with that of other reputable registries.

Infrastructure—Costly to Develop and Maintain

Ports Th e Port of Betio is run by the Kiribati Ports Authority (KPA), a public enterprise. Basic infrastructure at the port has been upgraded in stages with funding from Japan. Full utilization of expanded port capacity is still constrained by inadequacies in port handling equipment, particularly backup equipment. Any equipment breakdowns are thus disruptive. Th e feasibility of further port development— providing deepwater berthing suﬃ cient for the larger international ships—is under study, although its cost would be substantial. Th e imbalance at Betio between inward and outward cargoes is heavily in favor of the former. Port charges cross subsidize domestic shipping at the expense of international shipping. KPA provides stevedoring services, although shipping companies are allowed to provide their own stevedoring. KPA also operates the port at Kiritimati, although it is considering withdrawing as shipping companies tend to bypass the KPA facility and use alternative port facilities.

Airports Th e Ministry of Communications, Transport and Tourism Development operates airports in Kiribati. Bonriki International Airport requires airstrip resurfacing and repair of eastern sea defenses, and funding is being sought. Maintenance of the international airport at a reasonable standard is a prerequisite for securing an adequate level of international air services. Problems are experienced periodically with maintenance at outer island airstrips, but local capacity is adequate to handle these problems using equipment available to island councils.

Roads Roads in the main centers on South Tarawa are currently being upgraded as part of a Japanese aid project classiﬁ ed by the donor as ﬁ sheries sector assistance. Improvements include widening, drainage, and provision of footpaths in some areas. Road improvements bring with them the need for greater attention to road safety. Given the already high number of road accidents, it is encouraging that the Kiribati Police are leading a road safety campaign. Economic Response to Risk 137

Fuel Storage Th e Kiribati Oil Company Limited (KOIL) has taken over fuel storage in Betio from the former owner in a deal that saw the latter retain the contract for supplying fuel to Kiribati for 5 years. While this gave Kiribati more control over fuel storage, it has probably resulted in a less than competitive arrangement for fuel supply. KOIL anticipates that the fuel contract will be tendered at the next opportunity, with the prospect of more competitive supply. KOIL is attempting to expand fuel storage capacity by purchase of other fuel storage assets on South Tarawa. While overall capacity for fuel storage in Kiritimati covers requirements for 4 months, KOIL’s current storage capacity in South Tarawa amounts to barely 1 month’s supply. Th is results in frequent deliveries in small tankers from Fiji Islands at high cost. Greater storage capacity could bring with it the prospect of lower fuel prices if savings in freight exceed additional inventory costs. In combination with longer-term plans for further development of Betio Port, expansion of fuel storage capacity may also bring with it prospects of direct supply of fuel from reﬁ ning countries using larger tankers. Th is could have a signiﬁ cant impact on the cost of fuel, although its feasibility remains untested.

Developing the Line and Phoenix Islands

Remoteness

Th e tyranny of distance is a fact of life in Kiribati, but inclusion of the Line (except Palmyra, which is claimed by the US) and Phoenix islands in the independent state of Kiribati presented the Government of Kiribati with huge administrative and logistical challenges in making sustainable development use of these faraway and scarcely populated lands. Kiribati’s national boundaries stretch 5,000 km from northwest to southeast, enclosing three maritime EEZs with a total area of about 3.5 million km2, but only 810 km2 of land. Th e 16 islands of the Gilbert Group and Banaba cluster at the western side of this vast area, while the easternmost islands of the Southern Line group lie east of the northern Cook Islands—distances comparable to crossing North America from the Atlantic coast to the Pacifi c coast. Kiritimati Island is over 3,000 km due east of Tarawa. Kanton is at the same latitude as Tamana and Arorae but 1,200 km to the east, and 1,600 km east–southeast of Tarawa and a similar distance west–southwest of Kiritimati. Incorporating the Line and Phoenix islands in Kiribati increased its land area almost threefold. Kiritimati, at 388 km2, is the largest atoll in the world 138 Kiribati Social and Economic Report 2008 and makes up nearly half of the nation’s land area. All three of the Northern Line islands (Kiritimati, Tabuaeran, and Teeraina) are inhabited, but no people normally27 live in the Southern Line islands. In the Phoenix Group, only Kanton has a resident population, maintained there by the Government as evidence of sovereignty over the island group. Interisland vessels sailing direct from Tarawa take 5–7 days to reach the Phoenix Group and 10 days to 2 weeks to reach the Line Islands. Th ere are no natural seaports in the Line or Phoenix islands. Kiritimati has a deepwater berth (built for Japanese space-exploration cargo handling) that is exposed to the ocean and not suitable for general-purpose vessels. Tabuaeran has an 8-meter deep lagoon anchorage used by yachts crossing the Pacifi c and cruise ship tenders. Th e airfi elds at Kanton and Kiritimati were built over 60 years ago for military and occasional civilian transpacifi c use. Only the smaller of Kiritimati’s two airfi elds is currently operational, used by the weekly jet service from the Fiji Islands to Honolulu. Th e domestic service airstrips at Tabuaeran and Teeraina are not in use. Th ere is no direct air service between the Gilbert Group and either the Line or Phoenix islands (soon after independence, Air Tungaru, the forerunner of Air Kiribati, operated a B727 jet from Tarawa to Kiritimati, but this proved unsustainable). Weekly international air service through Kiritimati is provided by Air Pacifi c under contract to the Government of Kiribati. An Air Pacifi c Nadi–Honolulu service lands at Kiritimati going north to Hawaii in the early morning and again in the afternoon returning southbound. Twenty-two seats are reserved for passengers booking to or from Tarawa via Nadi, and government and private passengers regularly use the service.

Development Risks

Managing the orderly and sustainable development of isolated and resource- poor islands thousands of kilometers from the national capital and population center would be diffi cult enough for a developed, industrialized country. For the Government of Kiribati, with its limited technical and fi nancial resources, ponderous procedures, and tendency to delay diffi cult decisions, it presents a tremendous challenge. In 1988 and 1993, the Government carried out organized voluntary resettlement to the former coconut plantation islands of Tabuaeran and Teeraina,

27 In a notable publicity coup, Caroline Island was renamed Millennium Island and temporarily populated by government oﬃ cials, the national police band, dance groups, and international television crews on 1 January 2001. Th e International Date Line had earlier been altered to loop around east of the Line Islands, making them the ﬁ rst pieces of earthly real estate to enter the new millennium. Economic Response to Risk 139

relocating nearly 2,000 persons selected by island councils from islands in the Gilbert Group. Th e shortage of usable land and the continuing growth of population in the Gilbert Group has maintained strong pressure on the Government to facilitate further internal migration and resettlement in the east of the country. By far, the largest land resource is Kiritimati. But the abundant marine and bird species that could potentially support an economically valuable fl ow of sport fi shers and ecotourists to Kiritimati are already endangered by uncontrolled immigration and harvesting. Formulating a path to sustainable growth in these circumstances demands a level and quality of administrative control and development management that is in scarce supply in most countries. Th e Government cannot turn away from the challenge of developing the Line and Phoenix islands. But bureaucratic and technical effi ciency will need much improvement. Th ey will need to be able and willing to enforce locally grounded rules of environmental governance if growth prospects are not to be overwhelmed by the impact of population pressure on natural resources. It seems likely that carefully selected international advisors will be needed to supplement national personnel in planning and managing this process. Th e Government’s current aims for development in the Line and Phoenix islands, and the principal risks aff ecting them, revolve around three locations.

(i) Kiritimati (a) Aim: Steady, managed growth of population over 10 years to around 15,000 persons, with substantial delegation of governance from Tarawa; well-maintained infrastructure; and a private sector–driven economy based on export of marine products, sport fi shing, and ecotourism. (b) Risk: Th e pressure of people moving to Kiritimati may overwhelm its marine and land-based wildlife and perpetuate slum settlements before a suffi ciently strong administrative regime and physical infrastructure is in place to manage human impact and protect the island’s natural resources. (ii) Tabuaeran (a) Aim: Continuation and enhancement of the benefi ts of cruise ship tourism. (b) Risks: (1) Cruise line policy may change for reasons outside Kiribati control. (2) Increased volumes of visitors may destroy characteristics that currently make Tabuaeran an attractive cruise ship call. (3) Earnings opportunities for Tabuaeran people may not be fully realized. 140 Kiribati Social and Economic Report 2008

(iii) Phoenix Islands (a) Aim: Establish and operate world-class marine protected area, receiving monetary compensation for managing the area and prohibiting commercial fi shing, and fee income from well- managed ecotourism. (b) Risk: Th e size of the area makes policing diffi cult. Marine poachers may enter and damage and destroy fi sh stocks and marine life, and kill and drive away birds.

Response to Development Risks

Kiritimati A description of Kiritimati as Kiribati’s “new found land” appeared in the 2002 Paciﬁ c Islands Economic Report. Since then, an important and long-overdue task has been completed: the United Kingdom–funded clearing and removal of scrap and waste materials left behind by military activities of the 1950s. Th e island is now clear of rubbish from that period. Under National Development Strategies 2004–2007, the Government embarked in 2005 on a massive planning exercise focused on Kiritimati, supported by an ADB technical assistance grant. Th e aim is to identify and plan outer islands growth centers. Th e draft Kiritimati Island Development Plan (KIDP) is being prepared by an interdisciplinary team in collaboration with Government of Kiribati departments, particularly the Ministry of Line and Phoenix Islands Development (ADB 2006). Th e forthcoming National Sustainable Development Plan 2008–2011 maintains Government commitment to these eﬀ orts. Th e draft KIDP provides the most comprehensive analysis available of conditions and prospects for sustainable growth in Kiritimati. Sections of KIDP’s draft executive summary are pertinent and are presented below (ADB 2006). Included is a table of actions considered necessary in 2008 if the overall plan is to move forward in a timely manner:

Extract from Draft Kiritimati Island Development Plan, 2007

Th ere is a high level of private sector activity in Kiritimati Island, with the private sector estimated to contribute about 50% of GDP (gross domestic product). Th e corresponding fi gure at the national level is estimated to be about 40%. Th ere are 9 private sector establishments contributing signifi cantly to the Kiribati Provident Fund. However, the majority of economic activity is generated by a large number of small-scale businesses, many of which are home-based. Th e key Economic Response to Risk 141 reason for the comparatively healthy business sector stems from the fact that Kiritimati Island comprises people from all diff erent home islands living together on State lands. Unlike all other Kiribati Islands, there are no strong controlling structures with the exception of the church, to constrain development aspirations on the island. Family kinship reciprocal arrangements exist but are not as strong and as far-reaching as on one’s home island where complex extended family arrangements exist on family lands...

In terms of economic growth, the 3 most likely drivers of economic growth to underpin Kiritimati Island as an economic growth center in the short to medium term are:

• tourism, speciﬁ cally ecotourism; • higher-valued marine products; and • the land and housing sector.

Th e cost of doing business is high on Kiritimati Island because of its remoteness from Tarawa and other countries, plus the lack of economies of scale in the provision of infrastructure and services in Kiribati generally. However…the direct costs of business inputs are generally not intrinsically higher than they should be, given the small size of the market, the subsequent low volume of transactions and the distances from key suppliers and customers. Th e…overarching theme in the development of the private sector on Kiritimati Island is the prevailing attitudes in regard to fostering private sector development. Th e symptoms of the hesitancy to embrace the development of the private sector are subsequently reﬂ ected in the current framework in which business takes place in Kiritimati Island. Th ese include the key constraints of

• lack of access to State Lands; • type of land tenure; • lack of business ‘know how’ and skills; • uncertainty of transport services both air and shipping; • quality of the physical infrastructures services; • lack of autonomy from Tarawa; • poor information ﬂ ow; • community service obligations versus commercial rate; • public service eﬃ ciency; 142 Kiribati Social and Economic Report 2008

• access to capital; and • island development coordination and governance arrangements.

In terms of the potential of Kiritimati Island as an economic growth center, the draft KIDP [Kiritimati Island Development Plan] indicates that there are 7 key cross cutting thematic policy areas that need major policy, institutional and regulatory reform if Kiritimati Island is to be positioned as an economic growth center. Th ese thematic development areas are:

• promoting economic development; • reducing social and community hardship; • investing in Island infrastructure and services; • environmental and natural resource protection; • orderly island and village land supply; and • eﬀ ective and eﬃ cient institutional and governance arrangements for coordinated and integrated island development.

Within these themes, the overarching key development issues impacting on the future of Kiritimati Island as an economic growth center can be summarised as follows.

1. Kiritimati Island is remote and isolated, and hence markets are distant, transport costs are high and transport services remain uncertain. 2. Kiritimati Island has a narrow economic base and small domestic market. Th ere is little potential for economies of scale and economic opportunities are limited. History has shown the smallness of the economic base means it is vulnerable to externalities, particularly the reliability of air and shipping services. 3. Notwithstanding the high risk setting of Kiritimati Island, there are opportunities for economic development primarily in niche ecotourism development and local small-scale fi sheries. Th ese opportunities need to be up scaled whilst at the same time there needs to be greater effi ciency and eff ectiveness in the private and public sectors in order to reduce the costs of doing business. 4. Environmental management and the protection of the natural resource is virtually nonexistent. Increasing population growth and development pressure is resulting in increasing utilization Economic Response to Risk 143

of the natural resource base for subsistence lifestyles and supplementing cash incomes. However, it is the conservation and protection of natural resource base which also underpins the future of the tourism sector and the potential benefi ts it will bring to the Kiritimati Island community. Sound environmental practices including managing all areas outside the northern peninsula as environmental protection and conservation areas, is fundamental to the island survival. 5. Unchecked population growth will continue to give rise to social, environmental and economic problems, including demand for orderly land supply, inclusive social structures and sound environmental and natural resource management. Th ese issues are struggling to be managed eff ectively at the current time… major changes need to be made before further increases in population are considered. Th is includes releasing some land to reduce the pent up demand, as now refl ected in overcrowded households and growing number of squatters. 6. Th ere needs to be greater… eff ort to integrate the planning and management of Kiritimati Island. Strong and eff ective… arrangements for island development planning and coordination including devolution of power are paramount to sustainable economic, social and environmental outcomes. Investment in setting the right platform for ecotourism which off ers potential for improved livelihoods and household income, for example, is a priority rather than the disparate arrangements that currently exist. 7. To resolve the above issues, there is a need for greater national and island leadership on the value of the environment, the consequences of current actions, and mobilising the community on why it is important to conserve and protect the natural resource for both today’s and the future population. Th is will require a major shift in the current mindset of attitudes and practices…. Unless these attitudes, practices and values are quickly turned around by strong leadership, new values and community support, there is little hope for a sustainable future for Kiritimati Island.

Th e priority actions that need to be addressed immediately if Kiritimati Island is to have any hope of becoming a planned growth center are summarised in the following table: 144 Kiribati Social and Economic Report 2008

Theme Main Action—Intervention Rationale

1. Island Land Use The General Land Use Plan (GLUP) as agreed by the Kiritimati Local Development Land Planning Board (KLLPB) and local stakeholders in 2005 is used as the plan to guide development on Kiritimati Island. The GLUP provides for Tabwakea North and New Banana as the future main development areas. The area to the south east and south of the island are protected environmental and conservation areas and managed as such. The water reserves and adjoining buff ers are ‘no development’ zones. 2. Village The policy position on Banana village is confi rmed as follows— Development— that it will remain as a small village with no expansion. There will Banana be no compulsory relocation including fi nancial compensation, from Banana to New Banana. Building on the existing infrastructure in the Main Camp area, New Banana will be the main village development front in this part of the northern peninsula. 3. Unchecked Urgent measures are put in place so as to stop the unchecked In-Migration fl ow of the in migration to Kiritimati Island. Unchecked population is the main driver of environmental degradation in KI [Kiritimati Island]. Strict measures shall remain in place until such time that proper planning and infrastructure gains including changes in environmental management, the land release programs, water and sanitation and the like are in place to cater for small increases in population. 4. Land Release No more land will be released on Kiritimati Island following the 150 plot release program proposed for 2007–2008 (which are for KI residents) until the work on (i) the water and sanitation Project and (ii) strong progress on other island issues including stopping unchecked in migration, environmental protection and conservation measures, change in values, etc., are advanced. 5. Institutional The MLPID [Ministry of Line and Phoenix Islands Development] Arrangements will be realigned and strengthened as a dynamic and more for Island Planning autonomous development agency, responsible primarily for and Coordination integrated economic, social and environmental planning in Kiritimati Island. Current KI decision making is fragmented, most Ministries do their own thing, and the MLPID has no statutory base for integrated planning based on core functions. 6. Whole of Island Plan Prepare and implement a ‘whole of island’ plan integrating all community, Ministry and Project activities. All Ministry budgets should be focused to achieving this plan and the vision, its objectives and targets to be delivered such as improved environmental management and conservation, provision of tourism amenities, progression of ADB investment loan, new power supply, etc. 7. Environmental Kiritimati Island to the south and south west of Banana (that is, Management outside the northern peninsula) including the lagoon be declared as a protected environmental area given its environmental and bio physical signifi cance. Policy, institutional, regulatory and community awareness measures to ensure its protection and conservation need to be put in place urgently. Economic Response to Risk 145

Theme Main Action—Intervention Rationale

8. Service Arrears— A regime is put in place to improve payments for outstanding User Pays services such as water, power and land rent payments. Land rents arrears are about $250,000 while only $23,700 was collected for water bills in 2007 (26% of target). There is a total of $189,000 in cumulative unpaid water bills. 9. Institutionalize a As a fi rst step, Government institutionalize a process in South Process for Improved Tarawa whereby resolution of (i) the above issues and (ii) improved KI Management planning and management in KI, will be accountable. The rationale is to ensure the urgent actions are dealt with systematically, there is a clear line of responsibility and accountability and that realistic targets and time frame are set.

Much is at stake here. Kiribati is setting great store by the capacity of Kiritimati to absorb increased settlement while expanding public and private investment and economic activity. Th e draft KIDP makes it clear that this will require administrative and political courage and skill, and consistent application of well-drawn, well-understood rules. Th ese will need to be supported by substantial investment in improved infrastructure and services if growth is to be on a sound and sustainable basis. Th e enormity of the Kiritimati undertaking should not be underestimated by the Government of Kiribati or its development partners. But if the task is not aggressively tackled and carried out, the prospects for sustainable development of Kiritimati are bleak. Th e chances of achieving an acceptable quality of human settlement and long-term economic activity with current institutional machinery and relationships of governance and development are practically zero.

Tabuaeran Lying just over 300 km northwest of Kiritimati and 1,100 km south of the Hawaiian Islands, Tabuaeran’s history was until recently typical of the remote atolls of the central Pacifi c.28 Its coralline soils have been dug for phosphate and planted with coconuts, its 34 km2 of land has accommodated plantation workers and a repeater station for the transpacifi c ocean-bed cable, and its lagoon anchorage has given shelter to many seafarers crossing the Pacifi c. When Kiribati became independent, the Tabuaeran population of about 600 was mainly former employees of Burns Philp (the last commercial operator of the coconut plantation) and their families. Th e Government of Kiribati

28 Th e description of cruise tourism at Tabuaeran in this section benefi ted greatly from access to the unpublished master’s thesis, Th e Economic and Socio-Cultural Impacts of Cruise Tourism in the Republic of Kiribati, by Tarataake Teannaki, prepared as part of his tourism studies at University of the South Pacifi c, Suva, Fiji Islands. Th e author was resident administrator on Tabuaeran in the early stages of cruise tourism, with an unparalleled opportunity to observe developments. 146 Kiribati Social and Economic Report 2008 organized resettlements in 1988 and 1993 (which also involved Kiritimati and Teraina [Washington Island]) aimed at relieving population pressure in the Gilbert Group. Tabuaeran’s population thus doubled to about 1,500. Settlers paid $1,000 for a 1-acre parcel of land. Subsistence output from land and marine resources, with cash earnings from copra and (more recently) seaweed production supported a basic lifestyle, supplemented by remittances from relatives elsewhere. Small cruise ships carrying a few hundred passengers with adventure or amateur scientifi c interests visited the atoll during this period. Th eir shore expeditions, however, were self-contained with little or no organized involvement of residents with cruise tourists. Th e Government did little to promote the cruise ship trade, and some settlers with greater needs than life on Tabuaeran could satisfy returned to the Gilbert Group. In 1999, Tabuaeran attracted the attention of Norwegian Cruise Line (NCL), operating 10–11-day ocean cruises by 2,000-passenger ships out of Honolulu. US law requires non-US vessels in this trade to call at a foreign port before proceeding to a second US port. Tabuaeran was known from earlier calls by smaller cruise vessels, it was the right distance from Honolulu to feature in a marketable cruise, and it off ered a unique experience to visitors as an accessible but remote and undeveloped Pacifi c island. Th e Government of Kiribati was now becoming aware of the economic potential of cruise tourism, which off ered cash income in remote locations for very little public investment, and was ready to encourage this development. NCL began calling at Tabuaeran in 1999, and in 2000 entered into a 7-year agreement with the Government of Kiribati for 20 calls per year by vessels carrying around 2,000 passengers. Subsequently, this was increased to one call per week, and in 2002–2003, 120,000 cruise passengers came ashore annually. More recently, the Government of Kiribati has taken the view that about 32 visits per year could be handled at Tabuaeran without unacceptable disruption of the community and household life. NCL invested at Tabuaeran in boats, jetties, land transport, toilets, and other facilities for passengers’ comfort and safety, as well as in market structures to enable orderly trading in handicrafts and local foods and drinks. Expenditure ashore by cruise passengers and NCL itself results in typical family incomes of $40–$60 per ship visit.29 NCL also employs I-Kiribati men and women aboard its cruise ships in hospitality roles. Th ere are about 50 such employees away from Kiribati at any one time, remitting an average of around $10,000 each per year to their families in Kiribati. Th is pattern is similar to those employed on German vessels after training in Tarawa.

29 Estimate by MCIC. Economic Response to Risk 147

Th e impact of cruise tourism in the early 2000s transformed the economy of Tabuaeran. Th e Island Council’s limited infrastructure was repaired and expanded. Household cash incomes were converted into material assets such as housing, boats, outboard motors, bicycles, generators, and radios. Church fi nances benefi ted greatly from increased cash in circulation, and schools were improved through NCL donations and greater wealth among households. Th e net outfl ow of migrants was replaced by a net infl ow responding to the perceived opportunities for higher incomes. Th e net economic eff ect has been clearly positive, but cruise tourism does have negative aspects. Th e main risks associated with cruise tourism relate to its one-sided cultural impact, the possible degradation of the attributes that make the destination attractive, the tendency of cruise operators to retain the economic benefi ts of activities ashore, and the ease with which the tourist fl ow can be switched elsewhere. Th ese risks apply to Tabuaeran and are amenable to a management response to varying degrees. Th e skewed cultural impact arises from the great disparity in numbers and period of interaction between residents and tourists. Cruise tourists visit Tabuaeran for 1 day in large numbers, each tourist having a short period of controlled contact with local people. Th e visitors receive colorful but shallow impressions often colored by preconceived notions of atoll life and Kiribati culture. By contrast, the residents of Tabuaeran—at least the few hundred who deal with the visitors as entertainers and sellers of foodstuff s, drinks, and handicrafts—have contact with 120,000 visitors over 50 or more days in a year. Th is interaction is consequently a regular and important feature of their lives, with plenty of opportunity to observe a range of behavior. A form of development risk arises, by way of potential misunderstanding on both sides of the realities of the other culture, but with little chance of this having seriously negative outcomes. A related and more serious risk arises from the pressure exerted by up to 2,000 visitors per week on the very qualities of remoteness, rich or rare ecological resources and unspoiled natural beauty, and (more or less) self-suffi cient people that made the destination attractive in the fi rst place. Strong eff orts are needed to protect Tabuaeran or any other such destination—including Kiritimati—from becoming just another overmarketed tourist spot with trampled undergrowth, rubbish heaps, and begging children. Such a transformation would certainly end the cruise tourism trade. Th ese eff orts must come from the Government of Kiribati, NCL, and the Tabuaeran Island Council with the support of the people of Tabuaeran. Th e tendency for cruise operators to arrange matters so that activities ashore are owned and operated by them rather than by local authorities or resident entrepreneurs has been widely observed in other cruise destinations (notably 148 Kiribati Social and Economic Report 2008 the Caribbean, where cruise lines have bought whole islands and transformed them into fantasy destinations). Th is greatly reduces the scope for local economic benefi ts and leads eventually to resentment of the cruise ship visits. It needs to be resisted by intelligent negotiations to ensure local ownership and operation of shoreside activities, while recognizing the need to ensure that health and safety standards meet the cruise lines’ passenger insurance requirements and are reassuring to the visitors themselves. Tourism is a footloose industry, with its destinations dependent ultimately on tourists’ perceptions of their relative attractions, which are in turn largely formed by industry marketing of its strategic goals. Cruise tourism is particularly vulnerable to shifts in these perceptions. Tourists buy the cruise and an area rather than a particular destination. Cruise lines can change destinations easily— particularly in the very basic form in which it exists at Tabuaeran—because the operations involve only small shoreside investments by the cruise line that can be abandoned without great loss. Cruise ship visits to Tabuaeran declined sharply in 2004 and 2005 (Figure 15). Th is was probably related to the fact that NCL began operating vessels in the Hawaiian cruises built in the US and owned by US entities. Th e consequences of this for Tabuaeran are not clear, and it is important that the Government of Kiribati establish what NCL’s intentions are as soon as possible.

Figure 15: Number of Norwegian Cruise Line Passengers Visiting Tabuaeran Annually, 2002–2005

140 120

100 80 60 Number (’000) 40 20 0

20022003 2004 2005

Source: Tarataake Teannaki, unpublished thesis. Economic Response to Risk 149

Cruise tourism at Tabuaeran has been a success story so far through good cooperation between NCL, the Government of Kiribati, the Tabuaeran Island Council, and people of Tabuaeran. Its future cannot be guaranteed, however. It is worth ending with the sentiments of the author of the cited in footnote 28:

It is recommended that the Kiribati Government and the Fanning Island [Tabuaeran] Council make every eﬀ ort to ensure the sustainability of cruise tourism…maintaining and enhancing the natural beauty of the unspoiled environment and spontaneous friendliness of the people so as to ensure that the tangible beneﬁ ts of cruise tourism continue for…future generations…

Phoenix Islands Th e Phoenix Islands lay roughly 1,500 km equidistant from Tarawa to the northwest, Kiritimati Island to the northeast, and Samoa to the south (the Tokelau Islands are halfway to Samoa). In the last 150 years, the Phoenix Islands have had several spells of active contact with the outside world—e.g., digging of phosphate, coconut planting, and refueling transpacifi c air services—separated by longer periods of little or no activity. Successive claimants to sovereignty over this remote group of eight atolls have failed to make any long-term sustainable use of them. Th is is now about to change, with the widely acclaimed decision by the Government of Kiribati to establish there the third-largest marine protected area in the world, in line with the UN Convention on Biodiversity. Th e Phoenix Islands Protected Area (PIPA), designated under the Kiribati Environment (Amendment) Act, 2007, came into eff ect early in 2008. It creates a management area in two almost contiguous parts, totaling 187,000 km2 and extending 60 nautical miles off shore around the eight atolls. Despite its size, PIPA comprises only 5% of Kiribati’s total EEZs, and its exclusion from fi shing licenses is not expected to have a signifi cant eff ect on that source of Kiribati revenue. PIPA contains an extraordinarily rich and rare resource of marine and seabird wildlife, with globally signifi cant resident and migratory populations of birds and fi sh, and prolifi c coral reefs. Only Australia’s Great Barrier Reef and the Northwestern Hawaiian Islands protected areas are larger, and PIPA is by far the biggest protected area in the Pacifi c islands. PIPA has the potential to bring Kiribati valuable economic benefi ts while serving as a world wildlife sanctuary. It is expected to attract a steady fl ow of scientifi c and serious ecotourist visits, all subjected to careful planning and management so as to minimize interference with marine and seabird life. 150 Kiribati Social and Economic Report 2008

A division of MELAD has been formed to manage PIPA, headed by a former permanent secretary, with ready access to national and international expertise. Th e Government of Kiribati is acting in close collaboration with New England Aquarium and Conservation International to design a management scheme for PIPA. In addition to revenue from scientifi c and ecotourist access to PIPA, planned fi nancial arrangements include an endowment fund, the income from which would fi nance the operation of PIPA and compensate the Government of Kiribati for forgone fi shing license revenue. Conservation International is funding the initial implementation of the scheme and seeking international contributions to the endowment fund, with the publicity backing of National Geographic magazine. Th ese positive developments are helping to put Kiribati on the map in global biodiversity collaboration, enhancing the country’s reputation as a responsible partner with international conservation institutions, and can be expected to produce a number of useful spin-off s. Th e main risks attached to PIPA relate to the physical diffi culty of policing a large and commercially attractive marine resource in such a remote location. In the past, sporadic poaching by foreign vessels has depopulated shark breeding grounds and certain fi sh stocks. Special attention will be given to this in the PIPA management plan, including remote sensing techniques and physical patrols to intercept unauthorized vessels and monitor legitimate visitors. Continuing high-profi le publicity for PIPA and marine conservation will aim to create an environment in Asian and the Pacifi c countries which is hostile to poaching activities. Development Risk in the Public Sector

he public sector dominates the Kiribati economy, provides essential services and infrastructure, and distributes public funds through payroll and subsidies to households throughout the country. However, it is widely recognized as ineffi cient in its use of resources. TSome ministries and public enterprises have made progress in recent years in operational planning and reporting on performance. But overall, little use has been made of the monitoring process to identify problems and improve operational effi ciency. Many public enterprises have politically constituted boards and are subject to politically driven pricing controls. Many have required fi nancial support from the Government in the form of subsidies or guaranteed bank loans to stay afl oat. Public fi nances have lacked strategic direction and a medium-term perspective, and government budgets have not been treated as a key instrument of economic policy. Th e Revenue Equalisation Reserve Fund (RERF) has not been used to best eff ect to underpin a sustainable fi scal strategy, and government fi nancial statements have fallen into arrears. Kiribati is well supported by aid donors. However, aid management is piecemeal, and too much is left to the initiative of donors, risking underperformance, duplication of eff ort, and overemphasis on donor goals. Stronger, more strategic, and transparent direction of public fi nances, including better management of external funding as well as the RERF, is needed for more eff ective management of development risk. 152 Kiribati Social and Economic Report 2008

Need to Improve Public Enterprises

Signiﬁ cance of Public Enterprises

Th ere are 25 public enterprises in Kiribati that are wholly owned by the Government, and two joint ventures in which the Government has a minority interest. Public enterprises operate in most sectors of the economy, including air and sea transport, utility services, telecommunications, manufacturing, housing, tourism, fi nance, media, and wholesaling and retailing. Th ey are major employers, accounting for about 1,800 formal jobs. Th ere has been little change in recent years in the number of public enterprises or in the range of functions they perform. A small number of poor performers are being liquidated. Other recent changes include an alteration of joint-venture structures in telecommunications and banking, some restructuring of public enterprises in the fi shing sector, the emergence of a new public enterprise with regulatory functions in the telecommunications sector, and the possible formation of a new public enterprise to produce aggregates from Tarawa lagoon. Public enterprises have an air of stability and permanence about them in the Kiribati landscape that belies the heavy demands they make on public resources and the brake they place on private sector development. Several factors help explain this, including faith in public provision of goods and services (and an inherent, although apparently eroding, suspicion of private enterprise), limitations in public fi nancial management, the fi nancial cushion provided the Government by the RERF, and ready access to donor fi nancing. Th ere is widespread dissatisfaction in the private sector and in the wider community with the quality of services provided by public enterprises— dissatisfaction also felt by public enterprises that rely on the services of other public enterprises. Poor performance can be attributed to a degree to the small scale of operations and the generally diffi cult operating environment in Kiribati. However, much is imputed to a culture of ineffi ciency in individual public enterprises and the lack of incentives for improvement provided by the governance regime for public enterprises. Subsidies to public enterprises are a legitimate intervention provided they relate to delivery of agreed community service obligations at a cost that is clearly defi ned in a transparent manner. Subsidies should not be used to mask ineffi ciency. In the past, many public enterprises received direct subsidies from the Government, but subsidies in the national budget have been scaled back in recent years. Th e only public enterprise subsidy for which provision was made in the recurrent budget in 2006 and 2007 was to the Public Utilities Board (PUB) Development Risk in the Public Sector 153

for sewerage system operating costs. Th is subsidy is retained in the budget for 2008, and a subsidy of $250,000 to the Kiribati Housing Corporation has been added. However, subsidies also are found in development expenditure, with donor funding being applied to subsidies for PUB and Kiribati Shipping Services Limited. Th e pricing structure for copra incorporates a substantial subsidy to the public enterprise engaged in milling copra for export of oil. Air Kiribati Limited received substantial subsidies in earlier years. Most public enterprises also rely on the Government to fund major items of capital acquisition or replacement, often through donor assistance programs. Some public enterprises look to the Government to support maintenance and training needs they cannot fi nance. A number of public enterprises have overdraft or term loan facilities with the Bank of Kiribati (BOK) that are guaranteed by the Government, and it would appear that this form of fi nancing is growing as more pressure is applied to restrict direct transfers through the budget. One public enterprise has a 5-year exemption from income tax and customs duties. Despite the high level of fi nancial support from government, many public enterprises incur losses. A snapshot of the recent fi nancial performance of public enterprises is in Table 11. Data are taken from the most recent fi nancial statements available (relying on audited accounts where possible). What is notable is the lag of many years in the preparation and auditing of accounts in a number of cases. As for profi tability, only BOK and Telecom Services Kiribati Limited have been consistently profi table over the years.30 Enterprises incurring substantial losses include Air Kiribati, Central Pacifi c Producers Limited, Kiribati Copra Mill Company Limited, Kiribati Shipping Services Limited, and PUB. Th e return on government funds employed for public enterprises as a whole is negative in this presentation, at –3.7%.31

30 Th eir joint venture structure seems to be the main reason for their profi tability. It appears to have provided sound management practices as well as protection from government interference. Both enterprises have benefi ted from management systems supported by joint venture partners, and Telecom Services Kiribati Limited’s profi tability declined following the exit of its joint venture partner. Both enterprises also have had little competition, through a combination of natural monopoly power because of the small size of the market and restrictions on entry (the emergence of local competition in Internet outlets may be a factor in the decline in Telecom Services Kiribati Limited’s profi tability). Monopolies in other sectors, such as PUB, have not been similarly profi table due to management problems and constraints imposed by the Government in setting prices.

31 Allocating 25% of BOK’s net worth and net proﬁ ts to the Government. 154 Kiribati Social and Economic Report 2008

Table 11: Public Enterprises in Kiribati Government Financial Indicators of Kiribati Shareholding Net Worth Net Profi ta Public Enterprise (%)/Status ($ ’000) ($ ’000) Year Abamwakoro Trading Limited In liquidation – – – Air Kiribati Limited 100 (2,379) (2,678) 2005 Atoll Motor and Marine In liquidation – – – Services Limited Atoll Seaweed Company 100 164 (50) 2005 Limited Bank of Kiribati Limited 100 10,150 4,550 2005 Betio Shipyard Limited 100 1,960 (78) 2006 Bobotin Kiribati Limited 100 877 1,210 2004

Broadcasting and Publication 100 723 (35) 2000 Authority

Captain Cook Hotel Limited 100 1,387 (49) 2006 Central Pacifi c Producers 100 5,636 (1,265) 2002 Limited (CPPL) Development Bank of Kiribati 100 3,668 (218) 2004 Kiribati Copra Cooperative 100 1,063 113 2001 Society Limited Kiribati Copra Mill Company 100 2,518 (533) 2003 Limited Kiribati Handicraft and Local 100 104 (43) 2001 Produce Limited

Kiribati Housing Corporation 100 4,567 (212) 2003 Kiribati Insurance Corporation 100 3,352 441 2001 Kiribati Oil Company Limited 100 8,896 (382) 2003

Kiribati Otoshiro Fishing 100 – – – Companyb

Kiribati Ports Authority 100 25,558 (328) 2004

Kiribati Shipping Services 100 12,398 (1,371) 2002 Limited Kiribati Supplies Company 100 2,154 63 2006 Limited Kiritimati Maintenance In liquidation – – – Company Limited

Continued on next page Development Risk in the Public Sector 155

Table 11 continued Government Financial Indicators of Kiribati Shareholding Net Worth Net Profi ta Public Enterprise (%)/Status ($ ’000) ($ ’000) Year Kiritimati Marine Export Taken over ––– Limited by CPPL

Otintaai Hotel Limited 100 1,814 (98) 2003 Plant and Vehicle Unit 100 4,334 5 2000

Public Utilities Board 100 6,419 501 2001c Solar Energy Company 100 2,641 (4) 2006 Limited Tarawa Biscuits Company 100 209 29 2004 Limited Telecom Services Kiribati 100 5,280 117 2005 Limited Telecommunications 100 729 242 2007 Authority of Kiribati

Television Kiribati Limitedd 100 441 (76) 2005

– = no comparable data for these companies. Note: Financial indicators are for the latest year available, and balance dates vary. a After tax and any operating subsidies. b Comparable data not available for this company. c Th e subsidy received by the Public Utilities Board in 2001 was much larger than normal, at $850,000. d Formerly Telecom Kiribati Limited.

Source: Audit reports and public enterprise accounts from Kiribati National Audit Oﬃ ce.

Strategies to Improve Efﬁ ciency of Public Enterprises

Th e National Development Strategies 2004–2007 identiﬁ ed three key policy issues relevant to public enterprises:

(i) Th ey control large amounts of public resources but are eff ectively unsupervised. (ii) Th eir ready access to subsidies reduces pressure to be effi cient. (iii) Th e uncompetitive environment in which they operate encourages ineffi ciency.

Strategies aimed at tackling these concerns also were spelled out in National Development Strategies 2004–2007, with the Ministry of Finance and Economic Development (MFED) to assume the lead in implementing them. Th e 156 Kiribati Social and Economic Report 2008 strategies were: (i) incorporating public enterprises in the National Development Strategies monitoring system; (ii) introducing service agreements and applying stringent budget rules, accepting that some public enterprises may be revealed as not sustainable; (iii) limiting subsidies to specifi c noncommercial services defi ned in service agreements; (iv) opening subsidies to tender by private sector suppliers; and (v) identifying, testing, and instituting changes in work practices that enhance effi ciency. Progress in implementing these strategies has been very limited, apparently because of strong vested interests resisting change, and lack of political will and administrative capacity to overcome them. Some public enterprises have produced business plans, but little monitoring and reporting on implementation of these plans has occurred. A more restrictive approach to the provision of subsidies through the national budget is now in eff ect, but there is little evidence that the accumulating losses of many public enterprises are being addressed. Technical assistance is being planned to work with public enterprises to identify critical management and operational issues aff ecting their performance, and support appropriate measures tackling these issues. Th e agenda for reform of public enterprises set out in National Development Strategies 2004–2007 remains substantially unimplemented, but is still highly relevant. Strengthening supervision is seen as the key to better performance from public enterprises, and a mechanism to achieve this is discussed in the following section.

Supervision of Public Enterprises

Responsibility for supervision of public enterprises is distributed among line ministries, each public enterprise reporting to the ministry with sector responsibility for its area of activity. Proposals for a single minister to supervise public enterprises have not been adopted, presumably because public enterprises play a dominant role in several sectors, and because of the patronage opportunities they provide ministers. Seven ministries have responsibility for supervision of 1–9 public enterprises each. Th e relevant minister normally is responsible for appointment of the boards of directors, which then appoint the general manager or chief executive oﬃ cer responsible for day-to-day operations of the enterprise. Th e board of directors makes the important decisions in an enterprise, although in practice some decisions are subject to approval by the relevant minister, and particularly sensitive issues—usually those that might attract complaint from voters—are taken to Cabinet. Th ere have been attempts to inject private sector and community expertise into the boards of public enterprises, although nominees representing the Development Risk in the Public Sector 157

Government (usually the permanent secretary of the supervising ministry) and one or more political appointees continue to play a major role in most public enterprise boards. Th e pool of expertise in the Kiribati private sector for appointment to the boards of public enterprises is small. Th e appointment of qualifi ed directors from outside the country may be an appropriate measure to strengthen these boards.32 Costs would be involved, but these could be justifi ed by improved public enterprise direction and performance. One suitably qualifi ed person could be appointed to several boards. Th e auditor general reports to Parliament on the fi nancial performance of public enterprises on a case-by-case basis, and these reports are reviewed by the Public Accounts Committee of Parliament. As the accounts are commonly several years old, this review is of little benefi t in improving current performance. Public enterprises as a group are not subject to centralized monitoring or supervision, except by the system set up under the National Development Strategies 2004– 2007 involving the preparation and monitoring of business plans, which has achieved very limited coverage. Improved performance from public enterprises would be facilitated by a more robust system of monitoring and supervision. Th e key elements of such a system could be

(i) adoption of a code of governance for public enterprises, (ii) negotiation of service agreements with each public enterprise, (iii) performance auditing, (iv) centralized monitoring, and (v) public reporting.

Code of Governance A code of governance would put in place important principles relevant to all public enterprises. Th e code could be established by law, deﬁ ning the roles of those involved in public enterprise supervision (e.g., board members and permanent secretaries). Alternatively, the code could be established by Cabinet as a policy document guiding the supervision process. Th e code would comprise a set of principles of good governance to be observed by all public enterprises. It also could deﬁ ne other important obligations of public enterprises, such as ethical standards, environmental responsibilities, standards for setting employment terms, and conditions and remuneration for board members. Th e code would include the requirement of a service agreement between each public enterprise and the Government of Kiribati.

32 Th is is done to beneﬁ cial eﬀ ect in much bigger and more developed countries than Kiribati. 158 Kiribati Social and Economic Report 2008

Governance principles forming part of the code could include the following:

(i) Legal foundation. Public enterprises would have a solid legal foundation by incorporation under the Companies Act, or establishment under other sector-specifi c legislation. (ii) Clear objectives. Public enterprises would have a few clearly defi ned objectives. Th e tendency to delineate a wide range of often potentially competing objectives for an enterprise complicates decision making and assessment of performance. Public enterprises should limit their functions to those for which they were established and not branch out into other areas in search of profi ts. If the Government wishes to pursue other objectives in sectors in which public enterprises are operating, then it should defi ne the services required and purchase the services in a competitive bidding process in which public enterprises can compete with other potential providers. (iii) An arm’s-length relationship with the Government. Th e relationship between the Government and public enterprises should not be one characterized by ownership and control by government. Th ey should interact as independent entities in the open market. Public enterprises are separate legal entities, competing in markets for goods and services with private businesses, and should not be granted or receive any special treatment in dealings with the Government. (iv) Noninterference in day-to-day operations. Th e Government, including ministers responsible for public enterprises under governing legislation, must not be involved in the day-to-day operations or staffi ng of public enterprises. Th is is left to public enterprise management under the strategic direction of boards of directors. (v) Sound management arrangements. Public enterprises should be supervised by boards made up of persons with appropriate expertise and experience and good reputation, not persons chosen on the basis of their political allegiance. Government policy applicable to public enterprise areas of operation should be clearly set out in laws, regulations, and policy statements disclosed publicly in a transparent manner. Boards of directors are to be responsible for the appointment of senior management who, in turn, appoint other staff selected in accordance with transparent recruitment and promotion procedures. Public enterprises are to be required by government policy to produce and publish business plans linked to annual budgets, and to provide timely progress reports to facilitate more eff ective medium-term planning. Development Risk in the Public Sector 159

(vi) Financial solvency. Public enterprises are to operate with sound balance sheets. Th ey should not continue to operate when they cannot meet their commitments, forcing creditors to rely on the Government to cover defi cits. In such cases, public enterprises should be formally recapitalized and redirected, or closed. (vii) Accountability. Public enterprises should be held accountable to the Government and Parliament through timely production of annual reports and fi nancial statements. Public enterprise board members should be forthright about their legal duties and fi nancial liabilities as directors, and be questioned about them. (viii) Transparency. Legislation governing public enterprises and annual reports, including fi nancial statements, are to be readily available to the public. Directions to public enterprises under the legal powers of a minister, such as directions to amend budgets, are to be tabled in Parliament in annual reports, or separately. (ix) Community service obligations. Any payments by the Government to public enterprises for meeting community service obligations are to be based on formal agreements and formulas for calculating in a verifi able manner what part of the public enterprise’s operating costs should be met by public funds. (x) Monitoring and regulation. Th e Government would maintain central administrative procedures for monitoring, analyzing, and reporting on the operations of public enterprises. In some cases, such as public enterprises operating in noncompetitive markets, government regulation of prices and service standards will be needed. In such cases, careful analyses will be required, which may necessitate some strengthening of the capacity of MFED. Th e Government would publish and present to Parliament an annual report on the performance of public enterprises operating under the code of governance.

Service Agreements A service agreement is an enforceable contract between a government and a public enterprise. It is a key tool for supervising and improving the performance of a public enterprise and for holding government to its obligations. It can be suﬃ ciently ﬂ exible to allow a public enterprise considerable autonomy in day- to-day operations, while providing for rigorous monitoring of key outcomes. Such an agreement would allow the Government as owner to reduce its involvement in the day-to-day matters of the public enterprise in the knowledge that limits are established on its conduct and that performance will be checked regularly. 160 Kiribati Social and Economic Report 2008

A service agreement would ﬂ ow from a public enterprise’s business planning process and provide a valuable tool for the public enterprise to clarify its obligations and interaction with government. It would include a statement of

(i) objectives, nature, and scope of the main activities of the public enterprise; (ii) service performance standards; (iii) mechanisms for measuring performance against agreed criteria; (iv) the nature of information to be provided to the Government by the public enterprise during the course of the fi nancial year; (v) required government fi nancial contributions to cover operating and/ or capital costs; (vi) impending major investments and proposed fi nancing arrangements; (vii) proposals for varying the Government’s equity contribution; (viii) the dividend policy of the public enterprise; (ix) terms of access to, and the use of, land and other fi xed assets; (x) pricing policies (e.g., tariff structures and amendment procedures) in cases where a public enterprise lacks eff ective competition; (xi) accounting policies to be applied; (xii) specifi c employment, wage, and industrial regulations not defi ned in general legislation; (xiii) mechanisms for periodically revising the service agreement; and (xiv) other such matters as might be agreed by the responsible minister and the public enterprise board of directors from time to time.

Importantly, a service agreement would include a statement of services— commonly referred to as community service obligations—to be provided by the public enterprise in forms or at levels that recovery of commercial costs could not be expected from service fees or charges. Th e statement would spell out the corresponding obligation of the Government to provide appropriate and timely ﬁ nancial compensation to the public enterprise in the form of a speciﬁ c and accountable subsidy.

Performance Auditing Supervision of public enterprises would be strengthened if the audit process was expanded to include performance auditing in addition to the ﬁ nancial compliance audits currently undertaken. Th e 2003 annual report to Parliament of the auditor general recommended that value-for-money auditing be introduced in Kiribati, and noted the changes in legislation required to facilitate this recommendation. Development Risk in the Public Sector 161

Bilateral and regional assistance to the Kiribati National Audit Oﬃ ce (KNAO), described in a later section, aims to help implement this recommendation. Th e proposed code of governance for public enterprises and associated service agreements for individual public enterprises would be key resources for the auditor general in carrying out value-for-money or performance audits.

Centralized Monitoring A strengthened system of supervision for public enterprises would require a central agency to manage the code of governance, assist with the process of preparing and negotiating service agreements, and monitor and report on the performance of public enterprises as a group. In the Kiribati context, this function would best be located in MFED.33 Supervision of public enterprises would thus be shared by sector line ministries and the fi nance ministry. Important policy skills from line ministries would complement the economic and fi nancial skills of the fi nance ministry. Th e heads of line and fi nance ministries would need to ensure eff ective cooperation. Th e Government may decide it needs technical assistance to support a strengthened system of supervision for public enterprises. Such support from donors is likely, provided the reforms are identifi ed and driven by the Government of Kiribati, and technical assistance requirements associated with clearly defi ned objectives.

Public Reporting An improved ﬂ ow of information to the community about the functions and performance of public enterprises would be an important element of a strengthened system for public enterprise monitoring and supervision. Audit reports should be available to the public upon their tabling in Parliament. Regular release of information about the status and performance of the public enterprises would enhance the role of civil society. Civil society capacities, including the public service, are growing steadily and are likely to respond to the opportunity for more informed critical assessment of public enterprises based on more open reporting. Preparation of an annual statement on the performance of public enterprises, to be released at the time of the annual Government budget, would be required by the code of governance. Th e annual report should mention speciﬁ cally the state of public enterprise compliance with the code of governance. Ready availability of the code of governance to the public (in public libraries and the Government website) would be desirable.

33 Th e ministry is currently responsible for this function, nominally, but processes and staﬃ ng for its implementation are lacking. 162 Kiribati Social and Economic Report 2008

Unraveling Economic Distortions

A few examples will serve to illustrate the extent to which the economy is distorted as a result of policy decisions concerning public enterprises. A central policy aim appears to be the avoidance of raising prices paid by public enterprises, or by the public for goods and services supplied by public enterprises. Th e result is an economy that is constrained from achieving its full potential, and where investment decisions may be made on the basis of unsustainable price–cost structures. Some examples follow. Th e copra mill purchases copra from the copra cooperative (bought from producers with government subsidy) at a price signifi cantly below the export price of copra. Th e copra cooperative would thus earn more if it exported the copra unprocessed. It is not clear that the benefi ts created through employment at the copra mill justify this subsidy of its operations, which reduces the income available to copra producers and requires a higher subsidy to be paid to them by the Government. Public enterprises are prevented from passing on the increased costs of their inputs, with the aim of keeping prices to the consumer low. Th e Government has a legitimate interest in keeping infl ation low, and it should exert pressure on public enterprises to absorb cost increases as far as possible through improved effi ciency. However, delays in making justifi able increases in prices for such things as fuel, power, solar energy systems, freight, transport costs, and housing rents act as a drain on the viability and effi ciency of the public enterprises delivering these goods and services, and reduce the quality and quantity of public enterprise outputs used by the public. Electricity tariff s cross subsidize provision of water and sanitation services, and commercial and industrial users of power cross subsidize domestic users, raising the cost of power to existing and potential manufacturing investments.34 An aid-supported public enterprise engaged in a token level of fi sh processing occupies a valuable site at Betio port rent free, but exports very little product. At the same time, charges for port services for international shipping cross-subsidize port charges for domestic shipping. Distortions such as these infl uence the cost of doing business in Kiribati. Th ey contribute to the inability of public enterprises to run effi ciently, and reduce the quality of their services to the private sector and the public. Problems in service delivery accumulate as one cash-strapped public enterprise deals with another. As

34 A “lifeline” tariff for meeting the basic power needs of the most vulnerable at lower cost, while other domestic users pay economic rates, is a commonly used way of limiting the negative impact of this cross subsidy. Losses associated with the lifeline tariff could be subsidized by government in a transparent manner as a community service obligation, as discussed previously. Development Risk in the Public Sector 163 a result, most potential new entrants into business face higher costs, even if in some cases they appear to benefi t from being on the favored side of a decision to cross-subsidize or hold back tariff increases. Action to unravel distortions like those described above would strengthen the economy in the long run.

Box 3: A Case Study: Public Enterprises in the Telecommunications Sector

Th e telecommunications sector provides an instructive illustration of the evolution of public enterprises in Kiribati. Th e Government has been involved in a range of public enterprises in the sector, including a joint venture service provider that became wholly government owned; a holding company for telecommunications assets that began competing in some ways with the service provider, eventually shifting into another line of business altogether; and a new regulatory authority that is seeking ways to earn revenue that are irrelevant to—or may conﬂ ict with— its regulatory role. Th is experience has shown that the public enterprise model of service provision can adapt to changing circumstances. However, adaptation tends to occur in an unplanned manner, and important principles of sound governance can get lost along the way. In the 1990s, provision of domestic and international telecommunications services was handled by Telecom Services Kiribati Limited (TSKL), a joint venture with a foreign telecommunications company. Telecom Kiribati Limited was set up to own telecommunications plant and equipment and lease them to TSKL, with the aim of protecting national telecommunications infrastructure from overseas control (encouraging competition in the sector does not appear to have been a consideration in this arrangement). TSKL operated as a monopoly in service provision, and also undertook some regulatory functions. Telecom Kiribati Limited established a sideline in retailing electronic goods in pursuit of proﬁ ts. Th e joint venture in service provision ended in 2001, when TSKL became wholly government owned. Telecom Kiribati Limited continued to operate as the holder of telecommunications assets, although there was no longer a need to protect the assets from overseas control as originally intended. TSKL no longer paid rental on the telecommunications assets. Telecom Kiribati Limited then incurred losses, and in due course was reborn as Television Kiribati Limited, operating a television station and continuing to retail electronic goods. Television Kiribati Limited also competed with TSKL in a small way in the provision of Internet services. Th e asset replacement fund previously managed by Telecom Kiribati Limited was returned to the Government, while ownership of the telecommunications assets is not fully resolved.

Continued on next page 164 Kiribati Social and Economic Report 2008

Box 3 continued

Th e Telecommunications Authority of Kiribati (TAK) was established in 2004 to assume regulatory responsibilities for the sector. Th is reﬂ ected an emerging interest in opening the telecommunications sector to competition. TAK collects revenues, including those related to Kiribati’s Internet domain and surplus telephone numbers, and will collect revenue associated with the licensing of telecommunications service providers when this system is established. A portion of revenues is set aside in a telecommunications development fund. TAK has 10 staﬀ and plans to expand. Th e prospect of competition in the provision of mobile phone services has now encouraged TAK to contemplate public ownership of infrastructure (mobile phone towers) with the aim of avoiding proliferation of towers. Lessons to be drawn from the evolution of public enterprises in the telecommunications sector in Kiribati include:

• Public enterprises need clear objectives, based on an informed understanding of the roles of public and private sector institutions in a sector. An enforceable understanding is needed that will confi ne public enterprises to carrying out the functions for which they were established. • If these functions cannot be carried out commercially, then the public enterprise model is probably not appropriate (although the Government can provide subsidies, in a transparent manner, for the provision of noncommercial services and supplement the income the public enterprise receives from commercial services). • Th e quest for profi table activities in new fi elds to cover losses in the core business has extended the reach of public enterprises in the Kiribati economy, undermining the provision of core services and crowding out the private sector. While increasing complexity and the prospect of greater competition in the telecommunications sector warrant the formation of a regulatory authority, this authority need be only very small. As things stand, the regulatory authority collects revenue that is not linked to its costs of operation (revenue which relates to national sovereignty). Arrangements being contemplated by the authority are likely to see it expand its activities and absorb much of the revenue it collects, while the national budget is denied much-needed revenue. Th e revenue currently collected by the regulatory authority (and the license fees which are in prospect) should be paid directly to the consolidated fund to support the national budget, with the authority receiving a transparently appropriated budget subvention. Holding telecommunications assets, if that course were to be pursued, may also undermine the independence of the regulatory authority.

Source: Author. Development Risk in the Public Sector 165

Potential for Divestment

For reasons discussed earlier in this report, Kiribati has maintained faith in the public enterprise model for delivery of services to the community. Calls to transfer responsibility for the delivery of services to the private sector through privatization or closure of public enterprises have been resisted. Despite this, the Government has shown increasing interest in improving the effi ciency of public enterprises, both to enhance service delivery and to lessen the drain on the public purse. Some ineffi cient public enterprises were liquidated, the most notable being Abamwakoro Trading Limited. An attempt was made to privatize the Otintaai Hotel some years ago, but this was abandoned because of resistance from the workforce. Concerns are legitimate that the small scale of operations in Kiribati and the diffi cult operating environment may put key services at risk should ownership be placed in private hands. Th ese concerns are advanced to justify continued public ownership and operation of utilities, telecommunications, fuel supply, port operations, and transportation services. In some cases, these services appear to be natural monopolies in Kiribati and might require regulation if in private hands. However, public enterprises are operating in sectors where competition exists and where there are no strategic reasons for public delivery of services. Hotels, manufacturing, and trading operations are cases in point. Privatization or—at the very least—management contracts would appear to be sensible options in these cases. Management contracts could have wider applicability, covering such cases where public ownership is considered necessary to secure service delivery. Contractors could be sourced locally or regionally. It must be recognized, however, that eff orts to improve management in this way would not be successful unless backed by wider ranging reform of the public enterprise sector and concerted eff orts by the Government to consolidate such reform.

Performance of the Public Service

Structure and Size of the Public Service

Th e public service is organized into the Offi ce of the President, 12 ministries (each with a permanent secretary), and six nonministry agencies. Th e six nonministry agencies include the Public Service Offi ce (PSO) and the Public Service Commission, with the latter setting policy for human resources and handling its administration. Law and order is administered by the Kiribati Police Service, the Attorney General’s Offi ce, and the judiciary. Th e establishment of fi nancial policy, 166 Kiribati Social and Economic Report 2008

fi nancial administration, and economic and development planning are carried out by MFED. KNAO safeguards the fi nancial accountability of ministries and public enterprises. Uncertainty surrounding the number employed in the public service was noted previously. Th e Establishment Register contains 4,482 established positions. Th e PSO database includes a total of 3,404 public servants, with 48% male and 52% female, suggesting a gender balance in favor of women. Th e database reports a vacancy rate of 24%. If true, this would help explain the large “savings” in appropriations for personnel emoluments in recent years. Th e PSO database relies on information from ministries and is aware that these data may not refl ect reality. Recent eff orts to establish public service employment with certainty have not been successful. In 2007, MFED’s payroll system recorded payment of 4,414 persons—notably, 71% male and 29% female—not including those employed on a temporary basis or on contract. Th is was close to the payroll provision of the 2007 budget of 4,458 employees (with no gender breakdown). Th e 2005 census enumerated 6,953 people as having recent wage employment in public administration (57% male and 43% female), but includes local councillors and part-time workers as well as national public servants. Th e lack of clarity refl ects the overall fi ndings of this report regarding public service employment. Communication between and within government bodies is weak. Clear guidelines and procedures have not been established to enable collection of trustworthy data and the capture of information on which recruitment, planning, and payroll can reliably be based. It is noteworthy that the PSO database and 2005 census found a marked increase in the number of women employed in the public service. Th e proportion of females enumerated in public administration was 43%, compared to about 30% in 2002. Th ere is an additional female permanent secretary in 2007, making three of the total 11, as well as two female offi cers-in-charge. Th e Kiribati Police Service has appointed its fi rst female director. Women are gradually fi lling both more, and more senior, public service positions. Evidence is plentiful that many offi cers in the public service are underemployed, or—put another way—that many offi ces are overstaff ed. Th is probably refl ects an unspoken but pervasive thread in national development policy that an important way of distributing national income is employment in the public service. About $43 million, equivalent to nearly 30% of national monetary income, is distributed annually as wage and salary payments through public employees to wider family networks. Ideally, employment of large numbers of public servants should result in better services, but it is widely reported that this is not the case. Expenditure of almost 60% of funding for the recurrent Development Risk in the Public Sector 167 budgets of ministries on salaries leaves little for the purchase of materials with which to carry out work. Junior offi cials soon learn that so long as they keep their heads down, they are unlikely to be censured for underperformance. Discussion of reforming the public service and its policy and legislative framework has been common for many years. Recent discussion has included the preparation of legislation to amend the Public Service Commission (Functions) Act of 1983 to promote good governance; broaden the powers and functions of the Public Service Commission; prescribe the role of permanent secretaries; provide a code of conduct; strengthen disciplinary and appointment procedures; establish the Kiribati Public Service Policy, Procedures and Conditions of Service as a lawful instrument of employment; and enable the powers and functions in the act to be delegated. Th e National Conditions of Service provide the key regulations for human resource management in the public service, including human resource development. Th e sections in the National Conditions of Service regarding training and allowances were last reviewed in 2005. Further review would be useful in establishing the legislative and regulatory framework for improving public service performance. Reports maintain that the public service lacks many of the skills and qualifi cations it should possess to be in accord with the minimum qualifi cations required for public service positions. Consequently, a comprehensive human resource development plan has been created. Since 2000, 249 overseas scholarships have been successfully completed or are ongoing, funded by the Australian Agency for International Development (AusAID) and New Zealand’s International Aid & Development Agency (NZAID). In addition, the Government currently allocates $400,000 each year for overseas scholarships. Th is level of training should be producing a public service staff ed by more qualifi ed offi cers than appears to be the case.

Management Style and Public Service Culture

Th e informal understandings described in ADB’s Monetization in an Atoll Economy still operate in the public service today (ADB 2002, 87). As a result, numbers of offi cers in the public service are underemployed and underperform, while a few offi cers perform the bulk of the work. A culture of acceptance of underperformance, so long as it is not too obvious, continues to exist. Information is not shared unless requested, and then shared only sparingly. Issues are not confronted and problems are left to solve themselves. Even where regulations exist, they are not implemented consistently—in recruitment practices, for example. In some instances, national policy has been ignored by central agencies, as when funding for maintenance was removed from ministry recurrent budgets 168 Kiribati Social and Economic Report 2008 by MFED in contravention of directives under National Development Strategies 2004–2007 that maintenance allocations be protected. In many cases, attendance, punctuality, time management, and attention to offi ce cleanliness and tidiness are not observed, but no action is taken by managers. Suggestion of an annual president’s prize for the most improved department was not taken up. Records management systems may be in place, but fi ling systems do not produce information because offi cers do not use the systems. Information systems, where they do exist, are generally not reliable. Th ere are many meetings, but little action follows. Instructions are passed down the line to junior offi cers who are overworked, lack authority to delegate, and eventually cannot cope and stop performing. Th e prevailing attitude is one of “don’t rock the boat.”

Achievements of the Public Service

A review of outcomes under National Development Strategies 2004–2007 reveals a number of achievements, but also many instances where lack of attention has left issues identifi ed for action in 2004 unchanged and outstanding today. Successful results may be seen in the provision of welfare payments to the elderly—a major achievement. Th e consolidation of school attendance at the primary level also is a laudable achievement, as is the outreach approach of health teams visiting homes, schools, sports associations, and government offi ces. Movement toward improvement of the legislative framework for labor and employment is encouraging. Th e police have adopted a community policing approach and have increased their involvement in domestic violence cases. Th ey also have shown some success in working with youth to reduce alcohol problems. Improvements in the collection of statistics and information have been instituted by the police as well as the Ministry of Education, Youth and Sports. Th e latter is putting in place systems to increase accountability by providing information to communities about local school enrollment, attendance, and performance. Work on a multipurpose sports complex originally begun with aid from the People’s Republic of China was restarted, completed, and opened in Betio with aid funds from Taipei,China. However, the complex does not yet cater to soccer and athletics, the main sports of young people. Th e appearance of public spaces in South Tarawa has improved noticeably, enlivened by striking sculptural works of a resident diplomat. Garbage collection is better, and a very eff ective program for the collection of bottles and cans for export and recycling has been successfully privatized following its establishment by a regional nongovernment organization (NGO). Development Risk in the Public Sector 169

Some very important issues have not been addressed, however. Passive management of the budget continues unchanged, and population policy still lacks coherent implementation. An information technology working group has not been established as called for under the National Development Strategies 2004–2007, and information technology equipment and software continues to be provided on an ad hoc basis with consequent incompatibility and waste.35 Th ere has been no signifi cant private investment in marine resource development, no public investment in air, sea, and port facilities, and water and sanitation services continue to be poorly provided in Tarawa despite the completion of the ADB Sanitation, Public Health, and Environment Improvement Project (SAPHE). Educational standards have deteriorated and English language skills have diminished to the point that many job seekers cannot converse in English. School maintenance has continued to deteriorate, and the curriculum has not been modifi ed to incorporate vocational preparation. Hepatitis B is preventing many young people from taking advantage of overseas employment. Most ministries do not monitor the outcomes of their work or keep reliable and objective data on the services they provide. Generally speaking, the skills of qualifi ed I-Kiribati men and women are not being used eff ectively, a waste Kiribati cannot aff ord. Substantial resources are committed annually to tertiary education and scholarships for study overseas. No central record of what happens to these students and trainees is maintained. A tracer study is needed to identify where those with overseas qualifi cations are currently working, and plans should be prepared to guide further development of their careers. Overall, performance of the public service since 2004 can be characterized as business as usual. Few achievements are evident or reported, and accountability for delivery of services seems to be absent. Th ere are many opportunities for improvement, but to grasp them will require ministry managers to guide staff work programs and supervise staff more closely. Th e citizens of Kiribati know that Parliament allocates public funds to pay public servants. Th ey deserve to know what ministries plan to achieve, and what they have actually achieved. Timely, readable, and widely accessible reports are needed.

35 Th e situation is exacerbated by aid donors who pay no attention to the need for standardization and maintenance of computers, printers, and software. Government oﬃ ces have storerooms full of unnecessarily discarded computers and peripheral equipment that have been replaced by new project-funded versions. 170 Kiribati Social and Economic Report 2008

Box 4: Planning and Monitoring System

Th e National Development Strategies / Ministry Operational Plans System Th e system put in place in 2005 for detailed operational planning and progress monitoring under the National Development Strategies 2004–2007 revolved around the preparation of ministry operational plans (MOPs). Th ese embodied descriptions of programs and activities to implement the National Development Strategies and fulfi ll ministries’ statutory obligations, with timescales and estimated costs, and built-in periodic progress reports. National Economic Planning Offi ce (NEPO) staff was believed to have the organizational and skills capacity to implement the system, which would include maintaining contact with ministries to remind and, if necessary, assist them to submit their MOPs biannually. Th e MOP reporting system required ministries to report progress by completing one column in their original MOP. Th is was expected to be completed electronically against the original expected results. Th e system required that NEPO then prepare an overall report for Cabinet based on analysis of the information from the MOPs monitoring reports. Th e report to Cabinet was to provide information about

• budget expenditure against allocated budget; • key policy areas, with achievement indicators and the status of targets achieved; and • recommendations for management of expenditure and implementation.

Performance Problems It became clear in 2006 that, in common with previous performance monitoring systems in Kiribati and the Pacifi c generally, the results of the MOPs system were falling well short of expectations. Some ministries failed completely to report progress, while most reported very late and incompletely, making the overall reporting task of NEPO impossible. Enough ministries did complete MOPs reports on time and in suffi cient detail to show that the system could work and could generate valuable information for more eff ective management at ministry and national level. But there was no concerted drive to enforce the reporting system, and all too often the timeworn excuse of “change of staff ” was used to justify failure to report. Like many bureaucracies, the public service of Kiribati does not take easily to the discipline of planning, active direction of targeted activities, and progress monitoring.

Modifying the System A new management team in NEPO reviewed the MOPs reporting system in 2006/07 and made some changes to formats and processes in an eff ort to improve performance. Often, staff of NEPO is younger than the ministry staff they deal

Continued on next page Development Risk in the Public Sector 171

Box 4 continued

with, which constrains them somewhat, but under new leadership they have made headway. Th e revised MOPs reporting system requires ministries to complete a fi ve-column matrix, but it does not contain an explicit link to the achievement indicators, targets, and results to which its MOP commits a ministry. With the revised format, progress against expected results cannot be easily seen. It seems likely that further modifi cation will be needed to make more explicit this critically important link between MOPs and the progress. An additional matrix has been added to the process that provides information on progress in implementing the National Development Strategies 2004–2007. Th e revised system furnishes NEPO a more expansive—and therefore easier to read—report on the MOPs and an additional report on the National Development Strategies 2004–2007. It also requires additional work from the ministries, while losing the link between targets and achievements. Further modifi cation of the system is likely.

Operations to Date By late 2007, only one report had been provided to Cabinet on progress with implementation of the MOPs. No overall report on implementation of the National Development Strategies 2004–2007 had been submitted to Cabinet. Th e MOPs report to Cabinet provided information on the progress of fi ve ministries in implementing their MOPs. A report now being compiled will contain information from eight ministries and one public enterprise. NEPO has continued to manage the planning and monitoring system with dedication and perseverance, especially in recent months. NEPO has been able to provide a good overview to Cabinet of the activities of the fi ve ministries that submitted their MOPs reports. Th e system has provided these ministries with a basis on which to plan future operations. As noted by NEPO in its last report to Cabinet, however, there are several ministries that are not using the system eff ectively. Analysis of the fi rst MOPs report indicates that reporting ministries generally have not indicated why activities were not achieved, nor have they proposed program revisions for their achievement. Th e tendency of ministries is to report what they are doing, not how current activities compare with their MOP commitments. At least 12 planned activities in the fi ve ministries were not undertaken because of lack of funds. In two instances, expected technical assistance was not received. When this type of reporting is sustained on a regular basis and actively followed up, eff ective troubleshooting and blockage clearing is possible. Kiribati is still some way short of this level of development management.

Continued on next page 172 Kiribati Social and Economic Report 2008

Box 4 continued

Supporting National Sustainable Development Plan 2008–2011 with Eff ective Performance Monitoring NEPO will soon publish the National Sustainable Development Plan 2008–2011. Th e newly elected government announced its policies to Parliament in December 2007, and these will form the framework for the National Sustainable Development Plan 2008–2011. Th ere continues to be a strong risk of underperformance of the country’s development plan because of weak planning and monitoring systems, and poor enforcement of performance standards. Kiribati has yet to embrace the kind of discipline needed in public fi nance and planning for the achievement under pressure of diffi cult development goals. Th e pressure that is going to be felt in Kiribati in the next few years amplifi es the need for a coherent and comprehensive response. Th at includes national strategic plans, ministry operational plans, and business plans of public enterprises, all linked in a strongly administered performance monitoring system. Implementation of the planning and monitoring system is part of the performance contract signed by permanent secretaries. To strengthen both the planning and monitoring system and the performance management system, consideration could be given to expanding the current performance management system to deputy secretaries and directors.

Source: Author.

Managing Risks in the Public Sector

Competent and energetic leaders have recently been appointed to key positions in the public service. Th is is an encouraging sign of awareness at the highest levels of government of the need to revitalize and develop the public service. Senior offi cials are well aware of their responsibilities and some are developing eff ective plans, priorities, and resource allocations. Th ey need support in the form of adequate budgets and specialist advice. Th ey also need public service reform to give them more power in the recruitment and discipline of their staff —without excessive bureaucratic processes—and incentive to take risks. If the public service continues to perform below potential, the people of Kiribati will face the future with an unnecessary handicap. Education and health problems will aff ect the ability of people to work overseas. Millennium Development Goals will not be attained, and the National Sustainable Development Plan 2008–2011 will not achieve its objectives. If the public Development Risk in the Public Sector 173

service does not focus on logically ordered priorities clearly set out in ministry operational plans, the delivery of services will continue to be ineffi cient or, in some cases, completely lacking. Th e public service must be more eff ectively supervised to improve its performance. It needs to be accountable, and that accountability needs to be enforced. Ministries need to develop plans that describe the results they aim to achieve. Th is requires more specifi c descriptions of plans and objectives than appear in National Development Strategies 2004–2007 or in the National Sustainable Development Plan 2008–2011. Ministry staff , including permanent secretaries, should be accountable for their performance—i.e., for the way they serve the public and their achievement of ministry operational plans. Th is will require a commitment to change on the part of Parliament and ministries. It will require informing the public about objectives, achievements, and what is not being achieved. Th e Ministry of Education, Youth and Sports has made a commendable start in this direction with its use of information from the Kiribati Educational Management Information System (KEMIS). Information from KEMIS can be widely disseminated to schools, churches, and local governments. Th e Ministry of Health and Medical Services needs a similar system for collection and dissemination of health information. Reform will also require that ministries have the capability to develop and implement results-based implementation plans—known generally in Kiribati as ministry operational plans (MOPs). MOPs need to specify results to be achieved by every division in each ministry according to target dates and in terms that are measurable. Senior ministry staff will need to know the status of progress toward achievement of these results. MFED has been very active in requiring MOPs, but the requirement has been resisted by some ministries. Continuous encouragement and support by government central agencies and by donors is essential. Ministries will need access to help in developing appropriate plans, monitoring their implementation, and troubleshooting problems that arise so that solutions can be found.

Strengthening Fiscal Management

Need for Stronger Financial Management

Kiribati has had a deserved reputation for prudent fi nancial management, manifested since independence in the accumulation and careful use of the RERF. During this decade, however, persistent budget defi cits have emerged which 174 Kiribati Social and Economic Report 2008 have tended recently to expand sharply to fi nance off -budget or “below-the- line” expenditures.36 Budget defi cits are being fi nanced by drawdowns from the RERF. In principle, this presents no problem; the purpose of the RERF is to support the budget. However, the recent emergence of persistent budget defi cits, including some components of doubtful provenance, brings into sharper focus the question of the sustainable level of drawdown from the RERF. It also should bring with it recognition of the need for tighter, more forward-looking fi nancial management. It is important in this connection to separate fi scal management from economic and development planning. In recent years, the preparation and management of the budget has been treated as one of the functions of the National Economic Planning Offi ce (NEPO) within MFED. Th is is an unsound arrangement. Fiscal management needs to be clearly established as a distinct and major function of MFED, and headed by a deputy secretary or director reporting to the permanent secretary.

Trends in Public Finance

Government revenue declined to more typical levels between 2002 and 2005 due to a drop in fi shing license fees from the high level of 2002. Revenue remained steady from 2005 to 2007 (Table 12). Of particular concern, general tax revenue showed little change since 2003. During this time, there has been a marked increase in activity in the cash economy, not all of it apparent in offi cial economic statistics. It appears possible that a signifi cant amount of taxable activity is not being reported, detected, or taxed. External grants fl uctuated between about $52 million and $76 million during 2002–2007 (this item is diffi cult to estimate accurately). Driven by fl uctuations in fi shing license fees and external grants, total revenue and grants averaged $128 million over the same period, well above the revised budget for 2007. Total expenditure and net lending by the Government grew considerably in 2003 and 2004 because of high levels of development expenditure. Current expenditure in 2004, including greater spending on subsidies to copra producers and public enterprises, was also higher than normal. Revised budget fi gures for 2007 indicate that spending returned to a level slightly higher than in 2002, the combined result of signifi cantly higher current expenditure but lower estimates for development expenditure. Personnel costs accounted for close to half of current expenditure in both 2002 and in 2007 (according to revised budget estimates).

36 Th ere should be no expenditure or lending of public funds other than those authorized by appropriate laws. Entries “below the line” should comprise only payments or receipts made by the Government to or on behalf of other entities, and should be reversed and removed within a short time. Development Risk in the Public Sector 175

Table 12: Kiribati Central Government Operations, 2002–2007 ($ million) Item 2002 2003 2004 2005 2006 2007a Total Revenue and Grants 132.7 142.6 132.3 115.3 130.8 111.6 Revenue 80.3 66.8 64.3 59.6 60.0 59.5

Tax Revenue 25.0 27.2 29.0 28.3 28.6 28.9 Nontax Revenue 55.3 39.6 35.3 31.3 31.4 30.6 Of which: Fishing License 41.6 30.2 28.9 25.0 25.8 24.5 Fees External Grants 52.4 75.8 68.0 55.7 70.8 52.1 T otal Expenditure and Net 133.3 173.7 178.6 136.5 152.8 136.7 Lending Current Expenditure 71.0 81.8 96.2 80.8 82.0 84.6 Of which: Personnel Costs 35.9 38.2 37.5 37.5 43.9 41.1

S ubsidies to Public 8.3 8.7 14.6 6.1 8.3 8.3 Enterprisesb

Other Current 26.8 35.0 44.1 37.1 29.8 35.2 Expenditure Development Expenditure 59.8 89.9 82.4 55.7 70.8 52.1

Net Lending 2.5 2.0 0.0 0.0 0.0 0.0

Overall Balance (0.6) (31.1) (46.3) (21.2) (22.0) (25.1)

Financing 0.6 31.1 46.3 21.2 22.0 25.1 Revenue Equalisation 0.0 5.5 25.7 15.0 33.5 45.0 Reserve Fund

Consolidated Fund 3.7 18.6 11.6 6.9 (11.5) (19.9)

Development Fund (4.4) 7.0 8.0 (0.7) 0.0 0.0 External Loans (net) 1.3 0.0 1.0 0.0 0.0 0.0

( ) = negative value, $ = Australian dollars. a Revised. b Includes subsidies to copra production.

Sources: International Monetary Fund staﬀ report for 2007 Article IV consultation, updated with preliminary results for 2006 and revised estimates for 2007 from Ministry of Finance and Economic Development.

Overall, central government operations moved from a situation of balance in 2002, through a period of high levels of budget defi cit in 2003 and 2004, to a situation in 2005–2007 where defi cits of $20 million–$25 million appear to have become entrenched. Preliminary work on the 2008 budget indicates an estimated defi cit of around $20 million. Budget defi cits have been fi nanced through a combination of drawdowns from the RERF and borrowings in the form of 176 Kiribati Social and Economic Report 2008

Figure 16: Kiribati Central Government Operations, 1994–2007

200 180 160 140 120 100 80 Value ($ million) 60 40 20

0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Total revenue and grants Total expenditure and net lending

$ = Australian dollars.

Source: Staff reports, International Monetary Fund, updated with revised estimates for 2006 and 2007 from the Ministry of Finance and Economic Development. bank overdrafts. In 2006 and 2007, there were additional drawdowns from the RERF totaling just over $31 million to reduce the overdraft that had built up in the Government’s main account in Bank of Kiribati. MFED was unable to fully explain this development, but it appears to be the result of inadequately controlled advances to public enterprises and offi cials. Th e relationship between total revenue and grants and total expenditure and net lending since 1994 may be seen in Figure 16. While there were signifi cant budget defi cits in 1996 (because of very low revenues from fi shing licenses) and 2001 (due to a high level of development expenditure fi nanced by the Government of Kiribati), it was not until 2003 that persistent defi cits emerged. Budget surpluses were recorded in 1997 and 1998. Actual revenue collected in 2005 was in line with the original estimate, while preliminary results for 2006 indicate a shortfall of 12% compared to the original estimate. Collections from import duties, fi shing license fees, and ministry revenue were lower than budgeted, but were partially off set by higher than budgeted collections of personal and company taxes. Th e revised budget for revenue in 2007 is 8% below the original estimate, mainly because of downward revisions in estimates for fi shing license fees and import duties. Actual current expenditure in both 2005 and 2006 was in line with amounts budgeted, refl ecting satisfactory budget implementation capacity and reasonable Development Risk in the Public Sector 177

standards of expenditure control—in aggregate at least, leaving aside the question of the quality of spending. Th e revised budget estimate for current expenditure in 2007 shows little variation from the original estimate. Th e revenue shortfall in 2006 and the projected shortfall in 2007 led to higher defi cits in those years than had been budgeted, and were fi nanced by higher than budgeted drawdowns from the RERF. Little evidence is seen of attempts to cut expenditure during the course of either 2006 or 2007 through reservations and reallocations in the face of revenue shortfalls. Budgeted expenditure in 2007 grew by $2.3 million (2.7%) from 2006, with debt servicing accounting for $2.1 million of this growth. Budgeted expenditure on education and health declined $2.4 million in 2007, and the aggregate share of these sectors in total budgeted expenditure fell from 43% in 2006 to 39% 2007. From 1985 to 2005, however, education and health accounted for a steadily increasing share of expenditure (including any capital expenditure fi nanced by government). Th ese sectors accounted for 30% of annual expenditure on average over the 1985–1989 period, rose to an average of 33% in 1990–1999, and increased further to an average of 35% of annual expenditure in 2000–2005. Total expenditure in the draft budget for 2008 is $2.7 million (3.1%) below the 2007 budget level due to reductions in debt servicing, subsidies, grants, and other commitments. Th ese reductions are partially off set by growth in ministerial expenditure. Education and health account for 41% of total budgeted expenditure in the draft 2008 budget. A disturbing trend in public fi nancial management in Kiribati in recent years has been the reduced attention to funding maintenance of public infrastructure— be it donor fi nanced or Government fi nanced. Th is culminated in 2006 in a zero allocation to maintenance. Responding to criticism, in 2007 an allocation of $0.5 million was reinstated, and funding at this level has been retained for 2008. Th is amount is not likely to be a realistic assessment of maintenance requirements for publicly owned assets.

Strengthening the Budget Process

Preparing the Budget Responsibility for coordinating budget preparation for the Government of Kiribati rests with the Budget Section of NEPO within MFED. A single offi cer is responsible for the recurrent budget, and another offi cer is responsible for the development budget, although other staff members assist at some points in the preparation process. Th e permanent secretary of MFED has oversight of this process. Th e Public Finance Committee was established in 2006 with broad representation from the ministry, other central agencies of government, and 178 Kiribati Social and Economic Report 2008 key line agencies. To date, however, this committee has played no direct role in budget preparation. Previously, there was a budget committee consisting of senior offi cials of MFED, but like its successor, this committee did not play a strong role in directing budget preparation. An attempt was made to introduce output budgeting in Kiribati in the mid-1990s. AusAID became engaged in a lengthy process of introducing a new fi nancial information and management system that included the budget process. ADB saw this as an opportunity to introduce output budgeting following the New Zealand model. After a couple of years, however, it was recognized that a pure output budgeting approach was inappropriate in the context of the public fi nancial management system in Kiribati.37 Th e system remained in name an output budgeting system until 2006, although from 1998 the outputs identifi ed for funding were in eff ect programs aligned as closely as possible with government organizational structure. Th e 2007 budget formally adopted the program descriptor. Th e budget documentation provides breakdowns of expenditure for the budget year, original and revised budgets for the budget year minus one, and, in summary tables, actual expenditure for the budget year minus two. No forward estimates are presented. Budget documentation also presents information on the development budget, although appropriation by Parliament is not required. Th e development budget also is presented by ministry, and divided into projects that are funded— by donors, although in earlier years the Government of Kiribati also funded some projects—and projects that have been approved by the Government but remain unfunded. Th e coding system would allow the development budget to be broken down by program, enabling presentation of total resource allocation by program, but this breakdown is not presented. An additional list of projects not yet approved also is provided. Th ere is no strict division between current and capital expenditure in the recurrent and development budgets. Th e recurrent budget focuses on amounts requiring appropriation and statutory expenditure, while the development budget details projects. Budget documentation does not record the contingent liabilities of the Government. In particular, the level of government guarantees of borrowing by public enterprises needs to be monitored. It may be that a tightening in budgetary allocations to public enterprises has been matched with an increase in borrowing by public enterprises (backed by government guarantees). It is understood that government guarantees held by the Bank of Kiribati in late 2007, related

37 Th e eff ort to introduce output budgeting was supported by technical assistance. Greater attention should have been paid in the design of this assistance to developing a system appropriate to local circumstances. Development Risk in the Public Sector 179 mainly to loans and overdraft facilities for public enterprises, totaled just over $19 million. Th e fi nancial management information system used by the Government of Kiribati has a budget module with links to the computerized accounting system. However, budget preparation has drifted away from the use of this centralized system since 2005 and is now handled in-house using standard spreadsheet software. NEPO considers this provides a simpler and more robust system that avoids perceived operational and sustainability problems with the budget module of the fi nancial management information system. Final budget data now must be entered into the computerized accounting system to enable fi nancial reporting. Budget preparation for 2008 was undertaken in the midst of national elections in the second half of 2007. Preparation of the budget commenced in June 2007 with a request to ministries for submissions and a round of visits by the budget offi cer to ministries. No formal guidelines were issued to ministries regarding budget preparation, and no expenditure ceilings were set. Th e budget offi cer put together a framework for the 2008 budget based on revenue projections and expectations for expenditure on the basis of ministry submissions and subsequent discussions. Th is facilitated fi nalization of the budget by the newly elected Government.

A Multiyear Framework Th e major weakness of the current approach to budget preparation is that the budget is not anchored in a multiyear framework. Th is works against a considered approach to ﬁ scal policy that provides time for the planning and implementation of actions addressing ﬁ scal imbalances. Focusing on a 1-year time frame often means that imbalances are tackled through disruptive cuts to expenditure programs or through poorly planned new revenue measures—if imbalances are addressed at all. A multiyear framework usually covers a 5-year period and presents estimates for the budget year together with the latest data for the budget year minus two, revised estimates for the budget year minus one, and forward estimates for budget year plus one and budget year plus two. Other features of a multiyear framework include

• macroeconomic projections (forecasts of the overall direction, scale, and nature of economic activity and the balance of payments) to provide the context for the budget, and to shed light on the appropriate scale and balance of the budget; • revenue projections linked to the macroeconomic projections and other relevant drivers of particular revenue items; and 180 Kiribati Social and Economic Report 2008

• expenditure projections, in particular the requirements to sustain priority policies and programs.

Th e multiyear framework could be built up in stages in Kiribati. Th e initial focus could be on revenue projections. Projections for tax revenue could be made in conjunction with the Tax and Customs divisions. Projecting the main item of nontax revenue (fi shing license fees) would be more diffi cult given the volatility of this source. However, a basis for projections (setting out relevant assumptions) could be prepared with the assistance of the Ministry of Fisheries and Marine Resources Development and opened up to discussion. Revenue projections, together with assumptions as to the sustainable level of budget balance (almost certainly a defi cit in current circumstances) and RERF drawdown, could then be used to set a limit on expenditure in the annual budget and project limits in future years. In the next stage, work could be done on expenditure projections. At the beginning, such projections would be carried out using the best available information, and refi ned in later years as progress is made with the defi nition and costing of programs and activities. Expenditure projections would enable allocations among ministries of the overall expenditure limit set for the budget, and projection of ministry allocations for future years. Allocations for the budget year could be specifi ed in terms of expenditure ceilings for ministries, issued as early as possible in the budget calendar. Expenditure ceilings could be allocated on the basis of sector and inter-sector priorities and costing of priority policies and programs. Issuing binding budget ceilings at an early stage in the process—well before ministries fi nalize their budget submissions—avoids unproductive work in preparing ambit budget bids. Th e main function of the ministry budget submission then becomes intrasector allocation to best deliver agreed policy. Decisions on sector allocations are taken at an earlier stage in the budget preparation process, when the multiyear framework is updated and approved. Th is brings with it a need for extensive consultations in the preparation of the multiyear framework, and for formal adoption of the framework by the Government early in the budget cycle. Normally, the forward projections of expenditure would be restricted to expenditure implications of current policy, and would identify scope for new policy. However, distinction between current and new policy will not be particularly useful in practice until the programs and activities associated with current policy are clearly defi ned and costed. Th e multiyear framework could be refi ned with the preparation and introduction of simple macroeconomic projections, taking up trends in national Development Risk in the Public Sector 181 income, prices, and the balance of payments. In view of the simple and open structure of the Kiribati economy, sophisticated macroeconomic modeling would not be required. As indicated previously, macroeconomic projections would provide the context for the budget—shedding light on its appropriate scale and balance—and guide revenue projections. It is expected that the multiyear framework could be put in place quickly with relatively little technical assistance, provided the Government commits to adoption of this approach and interagency cooperation is strong. Th e annual budget would be presented in the context of the multiyear framework, providing a much clearer picture of where fi scal policy is heading. Th e Budget Section of MFED would be responsible for preparing the multiyear framework, under guidance from senior ministry staff . It is important that development and implementation of the multiyear framework has ownership by those who will be using it, and is understood by stakeholders in the broader community.

Safeguarding the Revenue Equalisation Reserve Fund Underpinning the national budget, and indeed the national self-conﬁ dence of Kiribati, lies the Revenue Equalisation Reserve Fund (RERF). Income from this fund has played an increasingly important role in recent years in balancing the Government of Kiribati budget. Probably no adult I-Kiribati is unaware of the RERF and does not sense that it is somehow of great national importance. Box 5 discusses the risks surrounding its sustainability, and presents recommendations for its better safeguarding and more eﬃ cient and sustainable use.

Box 5: Strengthening Governance of the Revenue Equalisation Reserve Fund

Th e Revenue Equalisation Reserve Fund (RERF) belongs entirely to the Government and is not subject to any external controls. It is unique in the region and an important source of prestige to Kiribati. It represents the accumulated and invested savings of revenue from the long-closed Banaba (Ocean Island) phosphate mine. At around $650 million, it is currently equivalent to four times gross national income and 6 years of imports. Th e fund is invested internationally in a diversiﬁ ed portfolio of equities and ﬁ xed-interest assets, roughly 40% in Australian dollars and 60% in other major currencies. It is managed by professional fund managers under formal performance guidelines and overseen by an independent professional custodian reporting to an

Continued on next page 182 Kiribati Social and Economic Report 2008

Box 5 continued

interministrial committee in Tarawa. Its investment performance has been broadly in line with similar internationally diversifi ed funds. Th e name of the fund makes clear its primary function, and the Government includes the drawdowns it expects to make from the fund to balance the recurrent budget in its annual estimates of revenue and expenditure submitted to Parliament. Drawdowns were $34 million in 2006 and $45 million in 2007, more than double earlier levels. Th e existence and importance of the RERF is well known in Kiribati, and recent drawdown levels have attracted concerned and adverse comment. Th e estimated drawdown for 2008 is $20 million. While the RERF is rightly regarded as a success story, there are grounds for concern about the nature of its governance arrangements and their eff ectiveness in countering the fi nancial and political risks to the fund in light of the increasing fi scal pressures on the Government. Th e main concerns are • Th e existence of the RERF and the ease with which it can be drawn upon has apparently begun to aff ect government thinking, loosening the prudent fi scal policy constraints that enabled the fund to be built up and maintained. It is essential for good governance that access to the RERF be governed by explicit rules, and subject to parliamentary scrutiny and public information. • Th e present legal status of the RERF is that of a special fund under provisions of the Public Finance Act. Th ose provisions were not intended to cover a fund of such size and strategic importance. Under the act, the minister of fi nance has power to make and change the rules governing special funds. It is more appropriate that the RERF be governed by its own statute, embodying entrenched protection of a core fund and providing limited access to income generated by the fund, under strict and transparent controls. Th e guidelines for preserving a minimum investment value for the RERF devised some years ago by the Government (referring to 1996 fund value per capita) have been made redundant by RERF’s growth. New reference standards are required. • Rules-based access should be provided to enable the RERF to fund both recurrent and strategic development needs—e.g., relating to climate change— while protecting a core investment fund. Th e rules should take account of the volatility of other revenues—specifi cally exclusive economic zone–fi shing access fees—and be able to accommodate fi nancial windfalls such as an upfront payment for dedication of the Phoenix Islands Protected Area. • Th e Government’s RERF Committee needs regular access to expert assistance in monitoring and assessing the performance of its investment managers. It is essential that this assistance be independent of the fund managers and

Continued on next page Development Risk in the Public Sector 183

Box 5 continued

of high professional standing. Th is may be done by amending the contract of the present fund custodian, who is independent of the managers, or by engaging additional assistance. • An annual report on the performance and use of the RERF (or the successor funds proposed below) should be laid before Parliament and made publicly available.

To meet these concerns and strengthen the governance of the resources of the RERF, it is proposed that the RERF be replaced and arrangements restructured by the enactment of a law transferring the RERF’s assets to two separate but related funds, and making the necessary detailed provisions, as follows:

a. A national reserve fund (NRF), initially of $500 million, to which the Government would not have access except by a special resolution passed twice—on separate days a week apart—by a two-thirds majority in Parliament. Th e NRF would be invested in a diversifi ed portfolio along the lines of the present RERF. b. Valuation and exchange rate gains or losses would remain with the NRF. Investment income (interest and dividends) would be applied fi rstly to maintaining the real value of the NRF, and secondly to transfers to the Government reserve fund (see next clause). c. A Government reserve fund (GRF), to which the Government would have access by specifi cally including proposed drawdowns in the annual Appropriation Act or supplementary appropriations for the approval of Parliament. Th e GRF drawdowns could be applied to recurrent or capital purposes, but not more than one quarter of the annual opening balance of the GRF could be appropriated in any one year. d. Neither the NRF nor the GRF could be used as security for borrowings by the Government or any government-related entity (similar entrenchment to clause “a” above). e. Windfall revenues of the Government would be held in the GRF until appropriated for expenditure, or transferred to the NRF (from which they could not be retrieved except by the “entrenched” parliamentary process), which might in some cases be appropriate. f. Th e GRF would be invested entirely in fi rst-rate Australian dollar fi xed- interest assets. g. Both the NRF and GRF would be professionally managed according to prudent investment guidelines and their performance overseen by independent professional advisers reporting to the successor committee to the RERF Committee.

Continued on next page 184 Kiribati Social and Economic Report 2008

Box 5 continued

h. Th e new statute would be known as the Kiribati National Reserve Funds Act. i. Its governing board would be chaired by the president and would include the minister for fi nance, the attorney general, and two persons of suitable experience and seniority representing civil society. j. Th e board’s annual report would record its substantive decisions, the investment performance, and fi nancial statements of the funds. Th e report would be laid before Parliament and published in national news media within 2 months of the end of the fi nancial year.

Such changes to an institution that has served Kiribati well since independence clearly require careful thought. But pressures and risks are mounting, and a response in the form of stronger governance combined with transparency and ﬂ exibility now seems appropriate.

Source: Author.

Budget Calendar and Guidelines In recent years, the budget preparation timetable has been compressed into the second half of the year, or indeed, the last quarter of the year. Introduction of a multiyear budget framework would require that budget preparation commence earlier in the year. More time would be required for preparation of the groundwork and issuance of guidelines before ministries are invited to prepare budget submissions. A formal budget calendar should be issued, setting out all of the steps in the budget preparation process, indicating deadlines, and identifying those responsible for action. Th e budget calendar would normally be issued with a set of guidelines explaining requirements at various steps in the process. Operational and human resources planning should be better integrated with the budget process. Th e budget calendar would best embrace the steps and deadlines involved in updating ministry operational plans as well as the steps involved in updating and costing ministry establishments (a process led by the Public Service Oﬃ ce).

Government Accounts

Current Status of the Accounts A substantial backlog is outstanding in the preparation and audit of annual accounts for the Government of Kiribati. Th e Public Finance (Control and Audit) Act requires that these accounts be completed and submitted to the Development Risk in the Public Sector 185

auditor general within 6 months of the end of the year. No specifi c time limit is established for completion of the audit of the accounts. Accounts for 2003 have been audited and tabled in Parliament.38 Accounts for 2004 have been completed and are with the auditor general, while accounts for 2005 are largely complete but not yet submitted for audit. MFED is aiming to complete accounts for 2006 by the end of 2007, and to complete the accounts for 2007 by 30 June 2008, as required by the Public Finance (Control and Audit) Act. Clearly some progress is being made in clearing the backlog of government accounts. However, concerns remain as to the quality of the accounts and the capacity of the accounting cadre to meet its responsibilities in accounting for public monies. In a report to Parliament concerning government accounts for 2003, the auditor general drew attention to a number of defi ciencies in the accounts. Th e most serious of these, requiring a qualifi ed audit opinion on the correctness of the accounts, included absence of bank reconciliations, missing payment vouchers, irregularities in cash in transit, lack of reconciliation of major items of revenue, and failure to address previous audit queries. Clearly the government accounting system requires urgent attention.

Getting the Accounts Back on Track Th e basic systems are in place for adequate maintenance of government accounts. Th e accounting cadre, with a reasonable level of training and experience, handle the accounting work in all ministries and report to the accountant general. Th e fi nancial management information system uses a standard accounting package that provides an acceptable level of performance, and the accounting cadre has received training in its use. Th ere are a number of other users of the same accounting package in Kiribati—an advantage in terms of technical support and skills development. Some line ministries have online access to the fi nancial management information system for processing transactions and accessing of reports, while others handle these tasks at MFED. Greater attention to management of the accounting cadre appears needed to improve performance. Accounting records appear to be poorly organized, and staff appears to lack suffi cient supervision and direction. It is suggested that initial priority be given to improving management of the accounting cadre before introducing any changes in systems.

Strengthening Audit Capability Regular and eff ective audit is an essential element of a sound fi nancial system. As in several other Pacifi c island countries, the Kiribati National Audit Offi ce

38 Th e 2003 accounts were submitted to the audit oﬃ ce in September 2005, and the audit report submitted to Parliament in November 2006. 186 Kiribati Social and Economic Report 2008

(KNAO) struggles to recruit and train enough competent staff to keep up with requirements for auditing government and public enterprise accounts. KNAO has undertaken a limited number of performance audits as well as pure fi nancial audits, broadening its impact but stretching its resources severely. Th e increased attention to audit reports by the parliamentary Public Accounts Committee— a key element in the wider development eff ort to improve the accountability of government—will be diffi cult for KNAO to adequately respond to unless it increases its capacity. Consequently, technical assistance to KNAO is being planned under the Australian bilateral program and a subregional audit support (SAS) program to strengthen the supreme audit institutions of Kiribati, Nauru, and Tuvalu. Th e SAS program will involve a subregional team of two experienced public auditors together with several auditors seconded from the participating countries. Th ey will form a resource for the three countries, undertaking audits in concert with national staff , conducting training, and building audit capacity through on-the- job interchange and experience. Th e program is part of the Pacifi c Regional Audit Initiative, a Pacifi c Plan initiative being implemented under the guidance of the 25-member Pacifi c Association of Supreme Audit Institutions with support from ADB and AusAID under the oversight of the Secretariat of the Pacifi c Islands Forum. Th e SAS program is expected to be operational by mid-2009.

Government Machinery for Managing Development Risk

In the Pacifi c region, the institutional structure for government management of national development typically is headed by a president’s or prime minister’s offi ce, which has responsibility for overall coordination as well as political accountability. A ministry or department of economic planning, supported by a number of line ministries, usually are responsible for longer-term sector and shorter-term operational planning, and for reporting on performance. Sometimes economic or development planning is assigned to a separate ministry, or it may be assigned to the ministry of fi nance or the president’s or prime minister’s offi ce. In Kiribati, the practice has been for development or economic planning to be assigned to a division of MFED. Little development planning, however, has been accomplished by this division. Th e division receives proposals for development projects that are prepared and appraised by the line ministries. Little or no scrutiny and appraisal of these proposed projects are carried out by the division with the aim of improving or even rejecting proposed projects on the basis Development Risk in the Public Sector 187

of objective assessment of their justifi cation, costs, potential benefi ts, and risks. Th e division has simply applied itself to administrative “check-list” processing of the documents of proposed projects on their way from line ministries to donor offi ces, and into Development Fund estimates as funded or unfunded pipeline proposals. Recent movements of senior offi cials in MFED indicate the possibility of change and the emergence of a stronger line. However, it will be 2009 before the quality of the budget can show the benefi t of more searching appraisal of development project proposals. Central oversight and monitoring of development risk falls naturally within the ambit of the development planning division in MFED. Th is arrangement could work well provided the development planning division is relieved of its responsibilities for fi scal policy and budget administration. Th is proposal was discussed in the context of strengthening public fi nancial management. Development projects or programs sometimes cut across several sectors, or have a whole-of-government character. Th e responsibilities of several ministries may be involved, and the Offi ce of the President will be concerned about monitoring and managing the wider political implications. During 2003–2005, two project proposals of this nature were developed that were diffi cult to position in the government’s administrative structure. Th ese projects concerned adaptation to climate change and population policy. It also was realized during this period that the Government lacked an organization or agency that could eff ectively deal with a major physical disaster, such as a destructive storm, a large-scale fi re, or the crash of a passenger aircraft. Th e concept of an administrative unit that would be part of the Offi ce of the President was consequently developed. Th e unit would have oversight of a small number of whole-of-government or strategically important projects, and would have a title indicating its role in managing strategic risk and disaster coordination. On the assumption the proposed unit in the Offi ce of the President would soon materialize, arrangements for management of the climate change project (Kiribati Adaptation Programme [KAP] II) and population policy were developed and agreed, and planning began for disaster response and coordination functions. However, it proved diffi cult to attract staff with an appropriate level of expertise to the proposed unit, and changes in staffi ng in the Offi ce of the President in 2006–2007 prevented progress with establishment of the unit. When senior staff postings following the recent election are settled, it will be timely to revive the proposal to establish the new unit in the Offi ce of the President. In the absence of such a unit, KAP II is reporting directly to the secretary to the Offi ce of the President, the strategically vital population policy is in abeyance, and the national disaster response machinery remains untested. 188 Kiribati Social and Economic Report 2008

Making Aid More Effective

Effectiveness of Aid

Th e eff ectiveness of a relative abundance of aid has long been of concern in the Pacifi c. Over 30 years ago, a report for the Forum Secretariat’s precursor institution expressed criticism and recommendations that continue to be voiced today, regionally and internationally (South Pacifi c Bureau for Economic Cooperation 1976). At a conceptual level, there is the problem of measuring aid eff ectiveness, a problem the Government of Kiribati should appreciate. Aid is a transfer of resources in the form of a grant or a loan with “soft” terms between two states or between a state and an international fi nancial institution or aid agency. Aid is said to be eff ective if it achieves what the parties to the transaction intended. It is said to be cost-eff ective if the intended results are achieved at acceptable cost. But international aid is usually part of a complex relationship between donor and recipient. Th e interests of the two sides in managing the relationship are rarely the same. Th eir ideas of what constitutes an eff ective outcome to an aid transaction, and what values to attach to its fi nancial and political costs and benefi ts, may diff er signifi cantly. Other interest groups whose concerns are aff ected may have entirely diff erent views. Rarely do these views and values exactly coincide. Kiribati needs to keep its own long-term interests clearly in view. Nevertheless, the conventions of development planning and aid administration provide a framework for the management of aid that includes formal agreements between donor and recipient on the objectives, design, and cost of aid-funded activities. By referring to them, the eff ectiveness of aid can be made a matter of formal scrutiny and accounting by the parties, while recognizing that less openly acknowledged interests also may be at stake, and may even be more important.

Continued Availability of Aid to Kiribati

Kiribati has a wide range of development needs across all sectors. RERF earnings can help sustain the recurrent budget and (particularly if the fund is restructured as previously recommended) can assist with the funding of development projects. However, Kiribati will not be able to meet all its future needs from its own resources. Th is should not be cause for undue concern. Kiribati has shown itself to be a responsible member of the international community, and it occupies a strategic location astride the central Paciﬁ c Ocean. Development Risk in the Public Sector 189

Aid to Kiribati will continue for a mixture of humanitarian and strategic reasons. Th e international community has worked with Kiribati since its emergence as an independent nation and will certainly continue to provide ﬁ nancial and technical support if Kiribati requests it. But concerns about aid eﬀ ectiveness have found their way to the international agenda, as discussed in the following section. Kiribati and its development partners will need to improve their standards of accountability regarding aid.

Trends in Development Assistance

Estimates of aid fl ows into Kiribati in recent years are in Table 13. Th e data derive from the Kiribati development budget and relate to budgeted expenditure. Data on actual expenditure by donors are not compiled. Th ese data are diffi cult to estimate because only a small portion of aid to Kiribati is provided in cash and passes through the accounts of the Government of Kiribati. Much aid is provided as aid-in-kind in the form of capital works managed by donors, equipment supplied by donors, and technical assistance. Problems in estimating aid amounts mean that funding levels shown for some donors are understated. For example, aggregate budget assistance to Kiribati by the United Nations Development Programme, the United Nations Fund for Population Activities, and the United Nations Children’s Fund for the period 2008–2012 is programmed at US$18.3 million (equivalent to US$3.7 million per annum, subject to fund mobilization), suggesting that Table 13 estimates for these agencies for 2005–2007 are understated. Estimates for ADB are overstated, in that they include loans for overlaying the Bonriki International Airport airstrip and for infrastructure on Kiritimati, which have not yet been approved. United States aid shown is an indicative estimate of the cost of the Peace Corps program, although the program has shrunk because of diffi culties in recent years with transport services to the outer islands. Part of the explanation for the decline in aid shown in Table 13 is that data for past years tend to be more complete than data for the current year, as budgets fi gures are revised upward over time. Table 13 estimates of aid funding are broadly consistent with information obtained from donors offi ces in Kiribati. Bilateral assistance from New Zealand amounts to approximately NZ$3 million to NZ$3.5 million per annum. Bilateral assistance from Australia will amount to approximately $10.5 million in 2007, with regional programs contributing an additional $4.5 million to Kiribati in the same year. Bilateral assistance from Taipei,China consists of an annual grant of $10 million, together with a range of other activities, such as the provision of 190 Kiribati Social and Economic Report 2008

Table 13: Kiribati Development Fund Budget by Donor, 2005–2007 ($ ’000)

Revised Budget Budget Donor 2005 2006 2007 Asian Development Bank 13,853 12,000 12,000 Australia 11,165 8,967 9,203 European Union 8,455 3,289 1,994 Forum Fisheries Agency 298 253 0 Forum Secretariat 43 422 416 France 110 0 0 Government of Kiribati 2,969 7,738 0 Japan 10,186 9,002 9,000 New Zealand 3,687 3,581 3,240 Nongovernment Organizations 0 353 120 Secretariat of the Pacifi c Community 25 201 43 South Pacifi c Regional Environment Programme 116 160 11 Taipei,China 16,739 14,107 10,400 United Kingdom 22 11 14 United Nations Children’s Fund 140 65 28 United Nations Development Programme 1,063 557 360 United Nations Environment Programme 100 115 0 United Nations Fund for Population Activities 112 40 0 United States 2,500 2,500 2,500 World Bank 6,208 559 2,531 World Health Organization 325 80 108 Other 43 52 82 TOTAL 78,159 64,050 52,050

$ = Australian dollars.

Source: Government of Kiribati Budget documents for 2006 and 2007. scholarships. Th e annual level of aid to Kiribati from the European Union is more diﬃ cult to estimate. However, the total allocation under the ninth European Development Fund (EDF) was €11 million, while the allocation under the tenth EDF will be €10.61 million plus additional amounts yet to be ﬁ nalized. Th ere is no bilateral allocation for funding from Japan, which is negotiated on the basis of individual projects and activities. Development Risk in the Public Sector 191

Aims of the Paris Declaration

Th e 2005 Paris Declaration on Aid Eﬀ ectiveness was the culmination of a series of earlier international commitments to harmonize and align aid delivery spread over several years. All the world’s major aid donors and the great majority of developing countries participated, and the standards set have been universally adopted. While Kiribati did not take part, its donors did, and the outcomes are clearly in line with Kiribati’s aspirations. Some of the key indicators used in monitoring the implementation of the Paris Declaration are:

• Ownership. Partners have operational development strategies. • Alignment. Reliable country systems are in place; aid ﬂ ows are aligned with national priorities; capacity is strengthened by coordinated support; country public ﬁ nancial management and procurement systems are used; capacity is strengthened by avoiding parallel implementation structures; aid is more predictable; and aid is untied. • Harmonization. Use of common arrangements or procedures; shared analysis. • Managing for results. Results-oriented frameworks. • Mutual accountability. Mutual assessment of progress.

In the same year, the Pacifi c Islands Forum initiated discussion of a set of Pacifi c Aid Eff ectiveness Principles which would assist in implementing the Paris Declaration in the Pacifi c. Th ese were adopted in July 2007, and are summarized below:

• Principle 1: Country leadership and ownership of development through an accountable and transparent national development planning and fi nancial management system or mechanism which is adequately resourced from the national budget—including longer-term operation and maintenance of donor-sponsored development. • Principle 2: Multiyear commitments by development partners and countries aligned to nationally identifi ed priorities as articulated in national sustainable development strategies, or the like, with agreement on performance indicators and monitoring and evaluation mechanisms. • Principle 3: Greater Pacifi c ownership of regional development, and development partners’ Pacifi c regional strategies designed and 192 Kiribati Social and Economic Report 2008

formulated with the Pacifi c Plan and other regional policies as their cornerstone. • Principle 4: Pacifi c development partners’ and countries’ pursuit of a coordinated approach in the delivery of assistance. Encouraging harmonization will be a priority for both. • Principle 5: Strengthened institutional mechanisms and capacity in countries to enable increased use of local systems by development partners. • Principle 6: (a) Provision of technical assistance, including in aid coordination and management, in such a way that ensures that capacity is built with tangible benefi ts to the country to support national ownership. Provision of an appropriate level of counterpart resources through established procedures and mechanisms. (b) Short-term technical assistance activities that address local skills gaps to conduct studies are culturally sensitive. • Principle 7: Use of an agreed monitoring and evaluation framework that will ensure joint assessment of the implementation of agreed commitments on aid eff ectiveness.

While Kiribati is not at this stage a party to the 2005 Paris Declaration, the Government of Kiribati is conducting its management of aid in accordance with the objectives of the Paciﬁ c version set out above. Examples of eﬀ orts to harmonize and align aid delivery are:

(i) Agreement of a set of aid engagement principles between the governments of Kiribati, Australia, and New Zealand, the aims of which include (a) increased local leadership, and greater alignment of development assistance with Kiribati’s own priorities, procedures, plans, and ﬁ nancial systems; (b) increased policy engagement leading to closer alignment with Kiribati’s development priorities; and (c) alignment of Australian and New Zealand operational procedures so as to increase the eﬀ ectiveness of aid. (ii) A consultation with donors organized by the Government of Kiribati at the end of October 2007 in relation to the National Sustainable Development Plan 2008–2011, providing an opportunity for an exchange of views while the plan was still under preparation. Development Risk in the Public Sector 193

Achieving More with Development Assistance

Partnership with the Donor Community Funding from development partners is estimated to have accounted for just over two fi fths of total expenditure and net lending by the Government of Kiribati over 2002–2007. Donor fi nance clearly has played a vital role in developing and sustaining public infrastructure and services. Th e importance of donor fi nance is unlikely to diminish in the years ahead in view of the many development challenges facing Kiribati. To help ensure continued access to external assistance, it is important that Kiribati makes full, accountable, and eff ective use of aid by working in partnership with donors in the spirit of the Paris Declaration and the Pacifi c Aid Eff ectiveness Principles.

Ownership by Kiribati of Donor-Financed Activities Kiribati will achieve a higher level of ownership of donor-fi nanced activities if it is more active in proposing development activities which best meet its needs. Th is requires greater attention by the Government to the identifi cation, formulation, and appraisal of development activities in order to increase confi dence among donors in the groundwork for these activities done by the Government. Th e project database maintained by NEPO of MFED should provide the basis for programming donor funds and new activities. A list of approved but unfunded projects is published each year in the annual budget. In theory, this list should contain all priority projects and activities, consistent with national development objectives, for which donor assistance is sought. Th is list should provide a guide for negotiations between the Government and donors concerning aid programming. In practice, the list does not provide such guidance because of concerns about the standards of appraisal applied to listed projects, and doubts about the projects genuinely refl ecting national priorities for donor assistance.

Raising Standards of Appraisal Ministries submit projects for development funding to NEPO throughout the year, using a standard project document format.39 Appraisal of projects by NEPO is limited, with emphasis on checking that documentation is complete. In the main, NEPO relies on the ministries to submit projects that are viable, sustainable, and in accord with government policy.

39 Th e current project document format does not appear to require that the recurrent costs of proposed development activities be clearly identiﬁ ed. 194 Kiribati Social and Economic Report 2008

Th e fi nance and economic development minister can approve smaller projects submitted by ministries to NEPO. Larger projects must be approved by the Cabinet. Approved projects are sent to the Ministry of Foreign Aff airs for transmission to donors. Th e development budget compiled each year lists all projects approved by the Government, and indicates whether they are funded or unfunded. Th e development budget also includes a list of projects received by NEPO but not yet approved by the Government. NEPO should play a more active role in appraising and ranking the development activities proposed by ministries. Before projects and activities are submitted to the minister and Cabinet for approval, NEPO should satisfy itself that proposed development activities are in accord with government policy, and that they are viable and sustainable. Th e funding of proposed development activities (be it by the Government of Kiribati or donors) should not be given serious consideration until they have been appraised by NEPO. Training programs in project appraisal are readily available, and many staff members in the Government have attended such programs. On-the-job training is needed to develop skills in applying techniques learned in formal training to fi eld work in Kiribati. Senior staff should be in a position to provide this training. Th ere also are opportunities to draw on other expertise, such as the planned assistance to NEPO from the United Nations Development Programme. Of equal importance is the need for senior-level support for higher standards of development project appraisal, such that this becomes a routine requirement for processing proposals for new development activities.

Better Targeting of Investment Priorities Priorities need to be attached to development activities and projects approved by the Government before they are submitted to donors. At present, priorities are discussed in aid programming talks with individual donors. Project proposals are forwarded to donors as they are approved by the Government, without systematic identiﬁ cation of project priorities. NEPO, working with its counterparts in line ministries, should be well placed to advise the Government on priorities among proposed development projects and activities. Projects and activities in the pipeline—i.e., those approved by the Government but not yet funded—could be systematically ranked according to priority. Th is process also should involve advising the Government on priority investment gaps that are not being addressed. Th e National Sustainable Development Plan 2008–2011 together with ministry operational plans would be the primary sources of reference in these matters. Development Risk in the Public Sector 195

Th e national investment priorities of Kiribati should play a prominent role in negotiations with donors. Of course other factors, such as Kiribati’s areas of comparative advantage and the aid policies and priorities of individual donors, also will be important in the selection of projects chosen for donor support. However, clear understanding of Kiribati’s national priorities should be welcomed by donors in the spirit of the Paris Declaration and the Paciﬁ c Aid Eﬀ ectiveness Principles. Such understanding will minimize the risk of Kiribati’s priorities being subordinated to those of donors. References

Asian Development Bank (ADB). 1994. Technical Assistance to Kiribati for Integrated Urban Plans and Program Study. Manila (unpublished). -———. 2002 Monetization in an Atoll Society—Managing Economic and Social Change. Manila. ———. 2006. Technical Assistance Report on Draft Kiritimati Island Develop- ment Plan. Manila (unpublished). ———. 2007a. Kiribati 2008 Fact Sheet. Manila. ———. 2007b. Technical Assistance Completion Report on the Kiribati Sanitation, Public Health, and Environment Improvement Project. Manila: ADB (unpublished). Bedford, R., and B. Macdonald. 1982. The Population of Kiribati: A Review of Some Myths about Migration and Depopulation. Christchurch: University of Canterbury. Duncan, Ron. 2009. Kiribati’s Political Economy and Capacity Development. Manila: ADB. Forum Economic Ministers Meeting (FEMM). 1997. Eight Principles of Accountability and the Best Practice Guide for Forum Island Countries Legislatures. Cairns, Australia: FEMM. Foundation for the Peoples of the South Pacifi c Kiribati. 2004. Young I-Kiribati Men and Mental Health. Tarawa, Kiribati: Th e Foundation of the Peoples of the South Pacifi c Kiribati. Government of Kiribati, Australian Agency for International Development (AusAID), and New Zealand’s International Aid & Development Agency (NZAID). 2007. Kiribati Urban Renewal Program Scoping Study: Kiribati Sustainable Towns Program. Tarawa, Kiribati (unpublished). Kiribati National Statistics Offi ce. 1996. Household Income and Expenditure Survey. Tarawa, Kiribati: Government of Kiribati. ———. 2002. Report on the 2000 Census of Population. Tarawa, Kiribati: Government of Kiribati. ———. 2006. Household Income and Expenditure Survey. Tarawa, Kiribati: Government of Kiribati. 198 Kiribati Social and Economic Report 2008

———. 2007. Kiribati 2005 Census: Volume 2 Analytical Report. Noumea, New Caledonia: Secretariat of Pacifi c Community. ———. Various years. Annual Statistical Bulletins. Tarawa, Kiribati: Government of Kiribati. Ministry of Education, Youth and Sports. 2003. Digest of Education Statistics. Tarawa, Kiribati: Government of Kiribati. ———. 2005. Digest of Education Statistics. Tarawa, Kiribati: Government of Kiribati. ———. 2006. Digest of Education Statistics. Tarawa, Kiribati: Government of Kiribati. Ministry of Finance and Economic Development. 2003. National Development Strategies 2004–2007. Tarawa, Kiribati: Government of Kiribati. ———. 2007. Draft National Sustainable Development Plan 2008–2011. Tarawa, Kiribati: Government of Kiribati. Ministry of Fisheries and Marine Resources Development. 2006. Fisheries Division Annual Report 2006. Tarawa, Kiribati: Government of Kiribati. Ministry of Health and Medical Services. 2007. Draft MDG Report. Tarawa, Kiribati: Government of Kiribati. Offi ce of Te Beretitenti. 2005a. Kiribati Adaptation Programme II. Tarawa, Kiribati: Government of Kiribati. ———. 2005b. Policy Statement on Climate Change. Tarawa, Kiribati: Govern- ment of Kiribati. ———. 2007. Policy Statement by H.E. Te Beretitenti Anote Tong. Tarawa: Kiribati: Government of Kiribati. 10 December. Public Service Offi ce. 2007. National Sustainable Human Resources Development Plan 2008–2010. Tarawa, Kiribati: Public Service Offi ce, Government of Kiribati. Secretariat of the Pacifi c Community (SPC). 2005. Pocket Statistical Summary. Noumea, New Caledonia: SPC. ———. 2007. Pacifi c Islands Populations 2007. Noumea, New Caledonia: SPC. South Pacifi c Bureau for Economic Cooperation (SPEC). 1976. More Effective Aid. Suva, Fiji Islands: SPEC. Teannaki, Tarataake. Th e Economic and Socio-Cultural Impacts of Cruise Tourism in the Republic of Kiribati. Master’s Degree thesis, University of the South Pacifi c, Suva, Fiji Islands. (unpublished). Tatoa, Batetaake, and Ieete Rouatu. 2006. Status of the Labour Market in Kiribati: Issues and Challenges. Labour Market Workshop conducted at Tarawa, Kiribati by the University of the South Pacifi c. References 199

Transparency International. 2004. National Integrity Systems. Transparency International Country Study Report: Kiribati 2004. Canberra: Transparency International. United Nations Development Programme (UNDP). 2001. Kiribati Legislative Needs Assessment. Suva, Fiji Islands: UNDP. ———. 2006. Human Development Report. Beyond Scarcity: Power, Poverty and the Global Water Crisis. New York: UNDP. United Nations Children’s Fund (UNICEF). 2005. A Situation Analysis of Children, Women and Youth. Suva, Fiji Islands: UNICEF. World Bank. 1998. Enhancing the Role of Government in the Paciﬁ c Island Economies: A World Bank Country Study. Report No. 18698. Washington, DC: World Bank. Available: www-wdsworldbank.org/external/ default/WDSContentServer/WDSP/IB/2000/02/24/000094946 _99031910552099/Rendered/INDEX/multi_page.txt ———. 2000. Cities, Seas and Storms—Paciﬁ c Regional Report. Washington, DC: World Bank. Appendix 1 201

Data Tables

Table A1.1: Profi le of the Islands of Kiribati

Island Land Area Population Median Age Number Average (Square Density Age Dependency of Males Household km) in 2005 (Years) Ratioa per 100 Size (Persons per Females (Persons) square km) Gilbert Group Banaba 6.3 48 20.0 82 120 4.9 Makin 7.9 302 20.0 76 101 7.3 Butaritari 13.5 243 18.2 99 98 5.8 Marakei 14.1 194 18.5 99 101 6.3 Abaiang 17.5 315 19.0 70 100 6.5 North Tarawa 15.3 372 19.7 71 94 6.5 South Tarawa 15.8 2,558 21.9 64 93 7.7 Maiana 16.7 114 23.9 83 98 5.4 Abemama 27.4 124 19.3 68 101 5.8 Kuria 15.5 70 20.7 96 95 5.4 Aranuka 11.6 100 20.8 89 99 5.5 Nonouti 19.9 160 19.3 80 104 5.9 North Tabiteuea 25.8 140 18.4 84 96 6.3 South Tabiteuea 11.9 110 19.9 104 108 5.0 Beru 17.7 123 22.6 73 95 4.7 Nikunau 19.1 100 18.7 108 105 5.7 Onotoa 15.6 105 22.9 96 101 5.0 Tamana 4.7 185 27.0 75 87 4.5 Arorae 9.5 132 24.7 91 100 5.2 Line and Phoenix Group Teeraina 9.6 121 18.6 90 118 5.8 Tabuaeran 33.7 75 18.2 86 102 5.8 Kiritimati 388.4 13 20.8 76 109 7.3 Kanton 9.2 4 23.3 86 105 4.6 Total 726.3 127 20.7 74 97 6.6

km = kilometer. a Th e number of economically dependent persons (i.e., those aged 0–14 years, and 60 years and over) per 100 economically active persons (15–59 years).

Source: Kiribati National Statistics Oﬃ ce (2007). 202 Kiribati Social and Economic Report 2008

Table A1.2: Kiribati Population Profi le

Average Annual Share Population Growth Rates of Total Item (Persons) (% per annum) Population 1990– 2000– in 2005 1990 1995 2000 2005 2005 2005 (%) Population by Island Gilbert Group Banaba 284 339 276 301 0.4 1.7 0.3 Makin 1,762 1,830 1,691 2,385 2.0 7.1 2.6 Butaritari 3,774 3,909 3,464 3,280 (0.9) (1.1) 3.5 Marakei 2,863 2,724 2,544 2,741 (0.3) 1.5 3.0 Abaiang 5,233 6,020 5,794 5,502 0.3 (1.0) 5.9 North Tarawa 3,648 4,004 4,477 5,678 3.0 4.9 6.1 South Tarawa 25,380 28,350 36,717 40,311 3.1 1.9 43.6 Maiana 2,180 2,184 2,048 1,908 (0.9) (1.4) 2.1 Abemama 3,218 3,442 3,142 3,404 0.4 1.6 3.7 Kuria 990 971 961 1,082 0.6 2.4 1.2 Aranuka 1,002 1,015 966 1,158 1.0 3.7 1.3 Nonouti 2,814 3,042 3,176 3,179 0.8 0.0 3.4 North Tabiteuea 3,201 3,383 3,365 3,600 0.8 1.4 3.9 South Tabiteuea 1,331 1,404 1,217 1,298 (0.2) 1.3 1.4 Beru 2,909 2,784 2,732 2,169 (1.9) (4.5) 2.3 Nikunau 1,994 2,009 1,733 1,912 (0.3) 2.0 2.1 Onotoa 2,100 1,918 1,668 1,644 (1.6) (0.3) 1.8 Tamana 1,385 1,181 962 875 (3.0) (1.9) 0.9 Arorae 1,440 1,248 1,225 1,256 (0.9) 0.5 1.4 Subtotal 67,508 71,757 78,158 83,683 1.4 1.4 90.4 Line and Phoenix Group Teeraina 936 978 1,087 1,155 1.4 1.2 1.2 Tabuaeran 1,309 1,615 1,757 2,539 4.5 7.6 2.7 Kiritimati 2,537 3,225 3,431 5,115 4.8 8.3 5.5 Kanton 45 83 61 41 (0.6) (7.6) 0.0 Subtotal 4,827 5,901 6,336 8,850 4.1 6.9 9.6 Total 72,335 77,658 84,494 92,533 1.7 1.8 100.0 Continued on next page Appendix 1 203

Table A1.2 continued Average Annual Share Population Growth Rates of Total Item (Persons) (% per annum) Population 1990– 2000– in 2005 1990 1995 2000 2005 2005 2005 (%) Population by Ethnic Group Micronesian 71,558 76,618 83,452 92,013 1.7 2.0 99.4 Polynesian 361 688 641 143 (6.0) (25.9) 0.2 European 155 142 15 4 59 (6.2) (17.5) 0.1 Others 261 210 247 318 1.3 5.2 0.3 Total 72,335 77,658 84,494 92,533 1.7 1.8 100.0 Population by Sex Male 35,770 38,478 41,646 45,612 1.6 1.8 49.3 Female 36,565 39,180 42,848 46,921 1.7 1.8 50.7 Total 72,335 77,658 84,494 92,533 1.7 1.8 100.0

( ) = negative value.

Source: Kiribati National Statistics Offi ce (2007). 204 Kiribati Social and Economic Report 2008 Continued on next page 00000000 ($ ’000, nominal prices) Copra CuttersCopra Society Cooperative Kiribati Copra Other Agriculture (555) (1,487) (1,107) (2,685) 2,066 (3,229) 4,956 60 (3,000) 5,035 (3,500) 60 (4,574) 2,530 (3,000) 2,835 60 (3,500) 2,715 60 4,910 6,291 65 3,159 65 3,417 65 70 90 100 Public 4,932Public Private 5,691 6,273 7,126 5,558EducationHealth 6,301 MinistriesOther Government 7,790 6,461 1,476 6,853 1,496 13,142 6,789 13,996 1,500 15,071 5,533 1,520 14,139 6,042 1,515 3,229 15,098 6,468 1,546 2,377 16,349 6,735 18,692 1,550 3,560 19,083 8,900 1,565 3,733 18,611 9,752 1,580 4,349 19,724 10,335 1,595 4,586 10,584 5,205 10,614 5,282 12,026 5,218 6,690 Industry Agriculture 1997 1,571 1998 3,529 1999 3,988 2000 (95) 2001 (329) (220) 2002 1,475 2003 1,787 2004 2005 249 2006 17 Fishing 2,517Fishing Seaweed 2,347Mining 0 2,270 2,280 0 1,728 2,333 2,611 2,291 85 2,380 193 2,440 538 467 428 32 (43) (154) (162) (159) Manufacturing 530Electricity 862 624Construction 1,371 1,356Wholesale/Retail 4,378 939 1,893 1,523Hotels/Bars 4,960Transport 1,196 2,171 554 5,829 2,150 2,735 644 5,263 2,233 2,136 549 4,814 2,133 1,932 3,520 5,799 664 1,180 1,478 3,332 9,496 1,319 643 332 4,005 7,099 1,003 6,408 642 181 3,980 9,257 1,260 7,187 10,333 646 1,312 7,773 10,468 8,646 9,759 7,073 6,205 7,847 6,029 9,340 5,947 8,026 8,433 8,384 Communication 3,295Finance Owner-occupied Houses 4,458 ServicesGovernment 4,837 4,693 5,269 3,056 1,903 5,061 3,225 21,904 1,839 5,160 22,415 3,324 1,936 8,041 25,099 5,314 1,766 9,935 24,607 10,096 5,855 1,583 28,347 5,266 1,984 30,687 34,232 3,604 1,773 34,949 3,955 1,928 34,443 3,880 2,001 38,440 4,841 2,005 Table A1.3: Table Industry Product by National Domestic Product and Gross Nominal Gross Kiribati Appendix 1 205 51,556 63,914 67,974 67,132 70,442 72,721 75,280 73,076 72,667 75,905 61,739 76,261 81,414 81,341 84,716 88,691 90,105 87,573 80,178 81,911 ce. t Institutions t 1,747 1,725 1,750 1,775 1,800 1,815 1,820 1,830 1,890 1,890 at factorat cost at market prices market at IndustryNonprofi OtherImputed Bank Service Charge (GDP) Domestic Product Gross (1,331) (1,349) 1997 (1,519) 1998 (1,598) (1,949) 1999 316 (2,027) 2000 (2,492) 320 2001 (2,663) 352 2002 (3,404) (4,873) 2003 305 2004 315 2005 401 2006 405 415 430 440 Taxes on ProductionTaxes SubsidiesLess (GDP) Domestic Product Gross 11,334 13,684 14,708 (1,151) 15,714 (1,337) (1,268) 15,783 (1,505) 17,978 (1,509) 17,825 (2,008) 19,497 (3,000) 18,511 (5,000) 18,006 (11,000) (12,000) Net Factor IncomeNet Factor (GNP) Product National Gross Memo Items: (%)Annual change in GDP at market prices 119,411Annual change in GNP (%) 151,699 per capita ($)GDP at market prices 145,335 4.9 capita GNP ($)Per 153,435 57,672 173,702 23.5 75,438 168,578 161,176 63,921 159,117 767 6.8 152,178 72,094 31.6 (0.1) 154,411 88,986 931 27.0 79,887 4.1 976 71,071 (4.2) 1,484 4.7 71,544 963 1,852 5.6 72,000 1.6 1,743 986 72,500 13.2 1,816 1,015 (2.8) (2.9) 2,022 (8.4) 1,014 (4.4) 1,929 969 2.2 (1.3) 1,814 (4.4) 866 1,761 1.5 870 1,645 1,639 Table A1.3 continued Table ( ) = negative value, $ = Australian dollars. $ = Australian value, ( ) = negative Offi Statistics Kiribati National Source: 206 Kiribati Social and Economic Report 2008 Continued on next page 000000000 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 ($ ’000 in 1991 prices) Copra CuttersCopra Society Cooperative Kiribati Copra Other Agriculture (1,354) (2,685) (1,572) (2,954) 1,487 (3,294) 3,234 43 (3,230) 3,386 (3,730) 40 1,766 (4,804) (3,230) 30 1,941 (3,730) 1,756 30 3,023 33 3,551 1,783 33 1,929 33 35 45 50 Public 4,480Public Private 5,248 5,651 6,425Education 4,752Health MinistriesOther Government 5,357 1,302 6,230 1,317 9,521 5,341 1,277 10,139 5,656 4,008 10,918 1,294 5,572 4,377 10,242 2,339 1,196 4,686 9,522 1,722 1,224 10,311 4,879 2,579 1,227 11,789 5,613 2,704 1,240 12,036 6,151 2,743 11,738 1,274 6,518 2,893 12,440 1,237 6,675 3,283 6,694 3,331 7,585 3,291 4,219 Industry Agriculture 176 589 1,844 (1,159) (1,321) (1,441) (674) (1,218) (1,402) (1,751) Fishing 1,790Fishing 314Seaweed 1,502Mining 0 252 1,453 1,459 292 922 497 1,244 397 1,393 180 1,222 166 1,269 1,301 133 183 170 Manufacturing 516Electricity 909Construction 993 635 1,053Wholesale/Retail 3,171 1,642Hotel/Bars 991 1,180Transport 3,593 1,727 1,328 575 4,223 1,440 1,389 685 3,319 1,437 1,282 5,664 581 3,036 1,457 1,647 8,894 2,220 1,591 718 1,902 6,599 5,782 2,101 1,869 1,963 690 8,571 6,565 2,526 2,066 2,088 8,908 686 6,928 2,510 2,142 8,871 7,719 691 2,237 8,065 5,948 5,215 6,581 5,109 7,458 5,040 6,580 6,929 6,809 Communication 4,393Finance Owner-occupied Houses 5,944 ServicesGovernment 6,449 6,258 2,055 1,492 7,025 15,868 2,145 1,279 6,748 16,239 2,209 1,288 6,880 18,182 2,296 1,401 10,722 17,825 2,323 1,274 13,247 17,878 2,407 13,461 1,608 19,354 21,590 2,490 1,444 22,042 2,745 1,577 21,723 2,755 1,635 24,243 3,383 1,641 Table A1.4: Table Industry Product National by Domestic Product and Gross Real Gross Kiribati Appendix 1 207 5.8 17.0 5.1 1.0 (4.2) 5.2 3.6 (1.5) (7.8) (0.6) 41,315 49,679 51,945 51,805 49,10951,498 50,910 62,026 53,515 65,385 53,814 66,014 55,868 63,383 56,972 66,880 69,356 68,311 63,379 62,978 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 ce. t Institutions t 1,266 1,250 1,268 1,286 1,304 1,315 1,318 1,326 1,369 1,369 at factorat cost prices market at (%) prices Industry Nonprofi OtherImputed Bank Service Charge (GDP) Domestic Product Gross (1,775) (1,799) on ProductionTaxes (2,025) SubsidiesLess (2,131) (GDP) Domestic Product Gross 229 (2,599) (2,703) 11,334 232 (3,323) IncomeNet Factor 13,684 (GNP) Product National Gross (3,551) 255 (1,151) 14,708 (4,539)Memo Items: (1,337) 15,714 221 (6,497) 94,752Annual change in GDP at market (1,268) 118,604 15,783 113,326 199Annual change in GNP (%) (1,505) 43,254 17,978 120,084 per capita ($)GDP at market prices (1,509) 56,579 130,122 17,825 253 capita GNP ($)Per 126,795 (2,008) 47,941 19,497 122,660 (1,984) 640 255 54,071 121,969 18,511 30.9 (5,000) 123,379 66,740 757 18,006 262 (11,000) 123,395 25.2 59,915 (12,000) (4.5) 784 271 1,177 53,303 53,658 1,448 781 6.0 278 60,000 1,359 738 8.4 60,417 1,421 (2.6) 765 1,514 (3.3) 781 1,451 (0.6) 756 1,381 1.2 1,350 685 0.0 1,333 669 1,310 ( ) = negative value, $ = Australian dollars. $ = Australian value, ( ) = negative Offi Statistics Kiribati National Source: Table A1.4 continued Table 208 Kiribati Social and Economic Report 2008 Continued on next page Ratio of GDP (%) Copra CuttersCopra Society Cooperative Kiribati Copra Other Agriculture (0.9) (1.9) (1.4) 3.3 (3.3) 0.1 6.5 8.0Public (3.8) 0.1Private 6.2 (3.4) 7.5 0.1 3.1 (3.9) 7.7 0.1 (5.2) 3.3 8.8 0.1 (3.7) 3.1 6.6 (4.3) 0.1 5.4 7.1 0.1 7.2 8.6 0.1 2.4 3.9 7.4 0.1 2.0 4.2 8.5 0.1 1.8 8.3 1.9 1.8 1.7 1.7 1.8 2.0 1.9 Industry 2.5Agriculture 4.6 4.9 (0.1) (0.4) (0.2) 1997 1.6 1998 1999 2.0 2000 0.3 2001 0.0 2002 2003 2004 2005 2006 Fishing 4.1Fishing 0.1Seaweed 3.1Mining 0.0 0.3Manufacturing 0.9 2.8 0.0Electricity 1.4 0.7 0.8Construction 2.2 2.8 0.0 1.8Wholesale/Retail 0.6 1.2 5.7 2.5Hotel/Bars 2.0 0.0 2.3Transport 0.5 0.7 6.1 2.8 2.6 0.0 1.5 0.0 0.8 7.2 3.4Communication 2.9 0.0 2.5 5.3Finance 0.0 0.6 6.2 2.6Owner-occupied Houses 2.6 0.0 2.5 5.8 0.2 0.7 5.4 2.3 3.0 0.0 2.4 9.4 5.9 0.2 0.7 3.9 1.7 12.5 3.0 0.0 1.3 5.8 0.2 0.8 3.8 1.5 10.4 8.7 0.0 0.4 6.2 0.8 5.0 1.1 4.9 11.4 3.1 9.4 0.2 5.7 4.9 1.6 12.2 4.2 2.4 9.5 5.7 11.8 1.6 10.6 4.1 2.4 9.2 10.8 8.3 6.5 2.2 12.4 7.1 8.8 6.9 1.9 12.3 7.5 10.4 5.9 2.2 7.3 9.2 4.0 2.0 10.5 4.5 2.2 10.2 4.8 2.5 5.9 2.4 Table A1.5: Table Industry Domestic Product by of Gross Domestic Product as Share Gross Kiribati Appendix 1 209 Ratio of GDP ce. t Institutions t 2.8 2.3 2.1 2.2 2.1 2.0 2.0 2.1 2.4 2.3 EducationHealth MinistriesOther Government 21.3 18.4 9.0 18.5 5.2 7.9 17.4 3.1 7.9 17.8 18.4 4.4 8.3 20.7 10.5 4.6 21.8 11.0 5.1 23.2 11.5 5.2 24.1 12.1 5.8 13.2 6.0 14.7 6.5 8.2 Industry ServicesGovernment Nonprofi OtherImputed Bank Service Charge factor at cost (GDP) Domestic Product Gross 35.5 1997 29.4 on ProductionTaxes 83.5 SubsidiesLess 1998 30.8 83.8 (2.2) 1999 prices market at (GDP) Domestic Product Gross 30.3 83.5 2000 (1.8) 100.0 33.5 82.5 IncomeNet Factor 2001 100.0 (1.9) (GNP) Product National Gross 34.6 83.2 2002 100.0 0.5 (2.0) 100.0 2003 82.0 38.0 18.4 (2.3) 0.4 100.0 2004 83.5 39.9 17.9 100.0 (2.3) 2005 0.4 (1.9) 83.4 43.0 193.4 100.0 18.1 (2.8) 2006 (1.8) 90.6 198.9 0.4 100.0 46.9 19.3 (3.0) 93.4 178.5 100.0 92.7 (1.6) 0.4 18.6 188.6 (4.2) 100.0 98.9 (1.9) 205.0 20.3 0.5 (5.9) 78.5 (1.8) 190.1 19.8 0.4 88.6 178.9 (2.3) 22.3 181.7 105.0 0.5 (3.3) 189.8 23.1 90.1 (5.7) 0.5 188.5 22.0 78.9 (13.7) 0.5 (14.7) 81.7 89.8 88.5 Table A1.5 continued Table ( ) = negative value. ( ) = negative Offi Statistics Kiribati National Source: 210 Kiribati Social and Economic Report 2008 b e. 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 a of Australia. Bank ce and Reserve (Percentage change in the average index for the period) index for change in the average (Percentage ator (1991=100) ator 119.9 123.0 124.5 123.2 133.7 132.6 129.9 128.2 126.5 130.1 – rough September. rough ItemFoodDrinksTobacco and Alcohol ClothingTransport 3.2 1997 UtilitiesHousing 5.1 2.4 3.8EducationRecreation 8.2 6.3Household Operation 1.1 0.7 0.1All items 2.1 3.5 7.6 3.0 (0.8) (0.8) (0.1) 2.6 Indexes Price (1.8) (1.0) IndexRetail Price 0.7 1.6 2.1 3.8 3.7 0.5 (1.0) 3.5GDP Defl 0.1 (3.4) (4.5) (1.8) 6.1 10.1 (1.3) 2.6 2.7 0.6 1.8 101.9 (0.4) (3.5) 2.5 0.6 3.4 3.0 9.9 105.6 (2.1) (0.3) 3.7 2.1 1.0 (3.3) 19.3 107.5 1.2 2.8 2.7 3.1 0.4 1.8 1.8 0.7 (0.5) 1.6 107.9 1.5 1.0 (1.5) (8.9) 0.0 2.0 0.4 0.4 0.6 0.7 114.3 (4.8) (3.2) (2.0) 0.3 0.1 0.0 118.0 2.2 0.5 10.1 6.0 2.7 4.7 (0.6) (1.2) 120.1 1.2 0.1 (4.0) (0.3) (4.8) 4.3 (2.0) 3.2 (7.4) (0.4) 119.0 4.0 (0.5) 5.3 0.3 0.0 (0.3) (1.0) 0.9 1.9 118.6 4.4 (1.9) 14.6 (5.6) 0.2 0.0 116.9 (1.0) 4.2 (0.1) (0.6) 121.6 (0.3) 0.4 0.0 (0.5) (1.5) 4.1 Exchange Rate Exchange US$/A$ (period average) 0.74 0.63 0.65 0.58 0.52 0.54 0.65 0.74 0.76 0.75 0.82 Th the four quarters 1997. to December change over the percentage Estimates for 1997 are Source: Kiribati National Statistics Offi Statistics Kiribati National Source: Table A1.6: Group Expenditure by Table Index Retail Price Kiribati valu dollars, ( ) = negative States US$ = United domestic product, dollars, GDP = gross A$ = Australian – = data not available, a b Appendix 1 211 Continued on next page 8,432 9,300 14,065 6,179 6,466 6,322 4,470 3,061 5,643 1,986 (52,536) (51,923) (63,720) (61,746) (68,542) (85,263) (79,496) (80,753) (100,081) (84,223) ($ ’000, nominal prices) FOB FOB Merchandise: Imports,Merchandise: Merchandise: Exports,Merchandise: TransportTravelCommunicationsOther 2,150Transport 845Travel 2,027 2,208Communications 1,005Other 1,951 2,300 4,449 (17,351) 1,380 (1,091) 1,805 2,600 4,602 (17,871) 2,394 (3,836) (1,163) (19,818) 2,324 1,402 2,239 (4,002) (1,538) 1,448 (24,883) (5,964) 1,920 1,592 3,729 (24,285) (4,025) (2,358) (7,386) 2,281 (23,711) 2,459 (6,756) 1,671 (1,283) 5,962 (7,755) 2,396 (24,742) (4,352) (1,194) 10,284 4,674 1,754 (5,610) (27,200) 2,503 (4,160) (1,250) 5,472 (6,675) (34,490) 3,081 1,754 2,540 (4,224) (1,250) (35,047) (9,194) 2,615 4,470 1,754 (5,236) 2,595 (1,300) (8,058) 2,438 5,705 (6,615) (1,300) (8,520) 2,348 (6,750) (8,485) (7,439) Trade BalanceTrade (44,104) (42,623) (49,655) (55,567) (62,076) (78,941) (75,026) (77,692) (94,438) (82,237) OtherCredit 440Debit 454 9,471 9,766 (343) 7,724 (28,242) 9 11,047 (30,422) (267) 10,731 (33,135) (39,606) 16,616 (872) (36,595) 14,214 (916) (38,258) 9,953 (38,274) (966) (42,206) 11,202 (923) (50,890) 12,402 (50,537) (923) Item Account Current on GoodsBalance (43,664) 1997 (42,169) (49,998) 1998 (55,558) 1999 (62,343) (79,813) 2000 (75,942) 2001 (78,658) (95,361) 2002 (83,160) 2003 2004 2005 2006 Balance on ServicesBalance (18,771) (20,657) (25,411) (28,559) (25,864) (21,642) (24,060) (32,253) (39,688) (38,135) Table A1.7: Table of Payments Balance Kiribati 212 Kiribati Social and Economic Report 2008 Continued on next page 0000000000 10,008 10,052 10,353 10,381 12,364 14,690 12,322 11,929 11,209 11,067 14,745 11,424 9,384 4,008 12,372 17,979 22,358 23,078 16,037 16,766 11,268 22,427 (1,465) (11,286) 9,448 (3,282) (12,169) (25,956) (60,308) (43,038) Employees Employees Compensation of Compensation Investment IncomeInvestment LicensesFishing 21,959 of Compensation 26,851 29,434 IncomeInvestment 26,962 40,323 (2,443) 30,416 31,930 (3,398) 29,359 31,159 (4,685) 26,766 46,564 (3,133) 25,424 41,719 (3,004) 25,572 30,188 (2,981) 25,014 26,900 (2,458) 26,453 25,000 (2,524) 26,400 (2,519) (2,429) GovernmentOtherGovernment 10,384Other 7,015 4,912 (51) 6,401 5,204 2,687 (495) (500) 4,278 8,652 (995) (300) 2,107 14,068 (586) (300) 4,420 19,805 (500) (200) 4,611 21,238 (500) (200) 12,872 3,575 (822) 13,924 (200) 4,380 (2,340) (200) 4,380 (1,015) (200) 4,380 (1,338) (200) (200) Credit 61,401 77,226 69,245 71,956 88,288 83,175 67,934 64,401 61,223 63,920 Debit (2,443) (3,398) (4,685) (3,133) (3,004) (2,981) (2,458) (2,524) (2,519) (2,429) CreditDebit 15,296 12,219 10,679 (551) 4,794 (795) 13,072 (1,295) 18,679 (786) 23,380 (700) 25,618 (700) 17,252 (1,022) 18,304 (2,540) (1,215) (1,538) Transfers Account Item Income on Factor Balance 58,958 73,828 64,560 1997 68,823 1998 85,284 1999 80,194 2000 65,475 61,877 2001 58,704 2002 61,490 2003 2004 2005 2006 Balance on Current on Current Balance Balance on Current on Current Balance Table A1.7 continued Table Appendix 1 213 11,743 11,743 00000 00000 30000000 30000000 2,640 714 (12,472) (12,636) 6,664 18,145 38,411 8,939 53,831 60,490 (7,540) (19,425) (24,651) (27,867) (14,626) (25,949) (19,820) (78) (10,004) 310 13,908 23,141 (13,937) (23,922) 16,112 14,863 26,242 (17,017) (6,477) 17,452 ce. bod0000000000 Kiribati240000000000 0000000000 Abroad In AssetsLiabilitiesAssets Liabilities (11,638) Account Financial (24,658) 0 (24,651) 3,858 (27,867) 0 (14,626) 5,23 (25,949) 0 (19,820) (78) 0 (10,004) (11,433) 0 Account GovernmentAccounts 10,180 20,139 12,179 15,231 21,290 44,094 58,231 8,861 63,835 60,180 Portfolio InvestmentPortfolio (11,638 (24,658) (24,651) (27,867) (14,626) (25,949) (19,820) (78) (10,004) (11,433) Direct Investment 240 0 0 0 0 Other Investment 3,858 5,23 Overall Balance Overall Balance on Capital and on Capital Balance Item and Financial Capital Transfers on Capital Balance 10,180 20,139 on Financial Balance 1997 12,179 1998 15,231 1999 21,290 44,094 2000 58,231 2001 8,861 2002 63,835 2003 60,180 2004 2005 2006 Table A1.7 continued Table FOB = free on board, ( ) = negative value. ( ) = negative on board, FOB = free Offi Statistics Kiribati National Source: 214 Kiribati Social and Economic Report 2008 Continued on next page Value of Exports ($ ’000 at FOB prices) Value sh 698 932 1,770 193 1,280 2,500 311 0 – ects 387 240 449 347 154 296 157 0 150 ns 94 129 210 404 361 437 469 0 – Copra oilCrude coconut Fish fi Aquarium 0 4,040 4,533 0 110 8,987 1,058 0 2,501 311 1,157 0 195 1,029 0 195 2,114 1,095 0 27 1,513 0 12 0 0 640 426 Shark fi SeaweedBêche-de-merHandicraftsOther domesticSubtotal 268 373 eff Personal 12 91Films 493 626Repair 5,686Scrap metal 303 1,103 3 160 8,077 1,699 480 529 13,021 0 1,356 13 22 519 5,522 1 0 0 652 5,978 1,076 1 454 1 0 34 385 5,176 77 254 1 9 384 0 3,676 0 131 0 1,479 3 10 411 0 0 0 4,999 – 0 0 0 2,009 0 0 0 0 – 0 0 0 0 0 0 0 0 107 Domestically Produced Exports Domestically Produced Other Exports Item 1997 1998 1999 2000 2001 2002 2003 2004 2005 Table A1.8: Table Exports of Kiribati Volume and Value Appendix 1 215 Unit Values ($ per ton) Unit Values Volume of Major Exports (tons) Volume ce. ns 47,000 12,900 105,000 67,333 72,200 218,500 156,333 – – ns 21026523–– CopraFishSeaweedShark fi 523 2,645 3,667 598 15,791 986 716 3,534 1,088 6,724 363 1,179 5,417 1,139 174 9,000 988 314 12,000 824 296 – 941 219 2,254 911 273 Other reexports reexportsTotal 2,324 2,746 981 1,223 585 1,044 297 657 334 488 850 1,146 637 794 – 0 387 644 CopraFishSeaweedShark fi 7,722 141 7,577 30 12,548 635 67 6,888 1,014 88 6,649 1,441 29 3,274 1,190 7,134 36 660 5,000 467 3 5,539 408 1 451 – 189

ItemExports Total 1997 8,432 1998 9,300 1999 14,065 6,179 2000 6,466 2001 6,322 2002 4,470 2003 1,479 2004 5,643 2005 – = data unavailable, FOB = free on board, $ = Australian dollars. $ = Australian on board, FOB = free – = data unavailable, Offi Statistics Kiribati National Source: Table A1.8 continued Table 216 Kiribati Social and Economic Report 2008 Continued on next page ($ ‘000, nominal prices) a ItemImports Food TobaccoBeverages, Crude MaterialsMineral FuelsOils and FatsChemicalsManufactured goods 2,956 1997 EquipTransport Mach and Misc Manufactured Goods 3,769 13,739 1998 823Misc Commodities 6,938 ImportsTotal 17,386 4,901 11,768 1999 1,061 8,227 268Import Duty 6,331 4,639 18,031 10,236Food 4,625 2,816 2000 1,827 6,042 TobaccoBeverages, 19,542 359 6,593 3,457 14,423Crude Materials 4,504 2,906 2001 1,454 362 9,640 18,855Mineral Fuels 15,924 5,978 4,633 52,536 422Oils and Fats 6,630 2,811 1,144 2002 11,132 21,912Chemicals 376 18,953 10,515 51,923 5,377Manufactured Goods 7,758 3,052 12,220 3,002 394 1,448 2003 24,321 21,810 63,720 12,710 439 5,022 12,742 7,860 2,954 26,315 4,204 1,241 2004 67,924 195 3,280 12,832 434 10,407 6,184 11,187 446 30,165 711 75,009 6,675 8,544 4,100 16,618 1,532 2005 4,428 9,926 185 420 555 81 6,260 91,584 8,467 21,722 4,116 4,299 408 746 1,382 4,576 16,473 377 79,495 194 759 11,622 6,239 665 101 2,802 4,473 1,053 4,754 843 80,753 499 4,848 184 684 810 100,081 124 5,411 4,237 4,643 614 774 611 174 8,202 556 882 5,124 110 310 539 545 5,606 155 5,834 835 120 532 883 593 5,383 5,506 169 907 115 1,014 5,956 612 176 888 188 1,017 557 174 947 175 938 580 921 164 643 Table A1.9: Table ImportsKiribati and Duty Collections Appendix 1 217 ce and in the national budget. 9,741 12,359 13,043 13,808 13,351 15,565 19,597 17,021 16,912 ce. erence between total duty collections as recorded by the National Statistics Offi Statistics the National by total duty collections as recorded between erence b is a small diff ere Item EquipTransport Mach and Misc Manufactured GoodsMisc Commodities Duty Total 754 781 809 1997 721 5 952 1998 832 1,287 1 1999 972 1,041 2000 1 902 1,343 2001 1,593 983 1 2002 1,973 1,153 2003 31 1,763 1,042 2004 32 969 2005 0 0 0 Th values. on board Free Table A1.9 continued Table Source: Kiribati National Statistics Offi Statistics Kiribati National Source: FOB = free on board, Mach = machinery, Misc = miscellaneous, Equip = equipment. = miscellaneous, Equip Misc = machinery, Mach on board, FOB = free a b 218 Kiribati Social and Economic Report 2008

Table A1.10: Kiribati: Sources of Imports, 2005 (Share of FOB value)

Country Percent (%) Australia 37.0 Fiji Islands 20.5 Japan 16.6 New Zealand 5.4 Taipei,China 4.8 United States 2.7 Singapore 2.6 People’s Republic of China 2.3 Guam 2.0 Papua New Guinea 1.9 Other 4.3 Total 100.0

FOB = free on board.

Source: Kiribati National Statistics Oﬃ ce.

Table A1.11: Kiribati: Visitor Arrivals (Number) Tarawa Kiritimati Total Year Air Sea Subtotal Air Sea Subtotal 1997 2,786 – 2,786 – – – 2,786 1998 4,096 – 4,096 1,571 – 1,571 5,667 1999 3,112 – 3,112 – – – 3,112 2000 3,171 – 3,171 1,658 – 1,658 4,829 2001 3,097 – 3,097 1,477 – 1,477 4,574 2002 3,259 – 3,259 1,676 – 1,676 4,935 2003 3,867 – 3,867 842 – 842 4,709 2004 3,173 – 3,173 – – – 3,173 2005 3,037 – 3,037 – – – 3,037 2006 2,004 – 2,004 – – – 2,004

– = data not available. Note: Does not include passengers on cruise ships stopping at Tabuaeran. Arrivals at Kiritimati are understated (and in some years unrecorded) due to problems with processing of arrival cards.

Source: Kiribati National Statistics Oﬃ ce. Appendix 1 219

Table A1.12: Kiribati Visitor Arrivals by Country of Residence (% of total)

Country 1997 1998 1999 2000 2001 2002 2003 2004 2005 Australia 21.5 20.6 19.2 15.4 16.6 21.0 17.3 20.9 25.2 Fiji Islands 6.0 5.9 7.5 7.0 7.3 14.4 14.6 13.9 14.4 United States 6.9 8.5 6.3 30.1 19.9 2.7 2.0 3.4 9.9 New Zealand 5.7 8.0 5.8 5.1 5.8 8.9 8.3 8.7 8.1 Japan 6.1 6.6 7.7 9.1 7.4 6.1 4.2 5.0 7.5 Nauru 14.1 12.5 22.9 8.4 2.0 4.2 7.6 3.5 4.9 Solomon Islands 1.4 0.5 0.8 0.3 3.8 2.9 6.9 1.8 4.5 United Kingdom 5.2 1.4 5.2 3.3 4.1 5.8 2.9 3.6 2.6 Tuvalu 8.8 8.9 7.2 2.4 0.3 1.0 1.0 3.0 2.0 Germany 1.7 1.1 1.2 1.0 5.9 8.9 6.3 7.1 1.7 Marshall Islands 1.2 2.6 4.7 2.3 9.2 4.6 6.2 6.4 1.6 Other Pacifi c 2.1 5.3 2.1 3.7 3.0 3.0 3.8 4.8 3.8 Other 19.2 18.1 9.4 11.9 14.7 16.5 18.9 17.8 13.8 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Kiribati National Statistics Oﬃ ce.

Table A1.13: Share of Visitor Arrivals in Kiribati by Purpose of Visit (% of total)

Purpose of Visit 1997 1998 1999 2000 2001 2002 2003 2004 2005 Business 33.6 38.2 38.1 45.3 42.5 49.1 40.7 43.6 57.9 Visiting Friends and Relatives 36.6 28.4 37.8 15.1 19.4 23.3 21.3 38.4 24.8 Holiday 28.1 20.2 11.5 27.8 22.1 5.3 6.2 3.2 8.6 Transit 1.6 10.2 10.1 5.1 11.3 15.0 27.0 7.9 2.9 Other 0.2 2.9 2.5 6.7 4.7 7.3 4.8 7.0 5.8 Not Stated 0.0 5.9 0.0 0.0 2.3 0.0 0.0 0.0 0.0 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Kiribati National Statistics Oﬃ ce. 220 Kiribati Social and Economic Report 2008 (%) 2006 2006 Continued on next page 1997– Expenditure Expenditure Share of Total Total of Share airs 2,367 2,314 2,383 1,946 2,278 2,303 2,680 2,729 2,296 2,734 3 3 Kiribati Central Government Expenditure from the Consolidated Fund the Consolidated from Expenditure Government Central Kiribati ($ ’000, nominal prices) airs 536 704 594 797 752 706 1,115 835 762 954 1 1

airs 1,710 1,592 1,627 1,739 1,954 2,675 1,980 2,051 2,009 2,105 3 3 Executive and Legislation and Legislation Executive FinanceExternal Aff 4,411 5,408 3,012Police 5,788Law 3,658 4,268 3,676 5,944 2,999 3,779 7,138 3,600 4,703 5,746 1,658 5,141 6,404 1,894 6,198 4,645 1,964 6,423 297 4,601 2,163 5,724 275 2,262 6,575 7 2,474 262 2,284 6 6 927 2,484 1,102 8 1,606 3 1,836 1,945 3 1,681 412 1 1 General Public ServiceGeneral Public 7,946 9,712 8,040 6,959 8,660 10,007 9,123 9,713 7,691 8,039 11 10 Public Order and Safety and Safety Order Public Education 9,440 3,309 10,993Health 3,933 11,679 and Environment Welfare 3,938 12,806 and Culture Community 16,131 4,706 and Fishing Agriculture 17,591 1,086 5,805Construction Aff 19,891 1,079 3,006Communication 6,747 20,291Commerce 2,348 3,386 8,034 19,880 985 8,368Labor Aff 21,889 2,345 1,458 8,368 1,071 7,108 2,406 1,524 7,405 1,365 21 9,239 2,325 1,872 6,987 7,748 1,746 8,830 27 2,528 2,096 6,803 2,410 10,360 8 2,897 1,670 1,819 11,392 2,479 811 13,160 1,845 1,657 1,687 2,491 9 807 13,754 1,781 2,350 2,144 2,611 13,147 759 1,725 2,575 2,232 13,009 1,829 2 3,120 711 3 14 3,067 831 3 3 2,910 16 3 1,019 3,363 2 1,000 1,031 5 1,042 1,032 4 1 1 Item 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Table A1.14: Table Appendix 1 221 (%) 2006 2006 1997– Expenditure Expenditure Share of Total Total of Share ce. ed 2,797 4,851 24,287 19,985 37,084 35,295 18,101 31,277 15,617 13,794 27 17 Recurrent ExpenditureRecurrent Fund Development To 49,430 50,597 1,506 60,136 4,326 54,807 8,484 77,332 84,721 9,482 76,381 13,680 95,262 11,279 78,563 6,633 79,967 2,936 92 0 100 0 8 0 Consolidated Fund Expenditure Fund Consolidated 50,936 54,923 68,620 64,289 91,012 96,000 83,014 98,198 78,563 79,967 100 100 Memo Item: and SalariesWages 22,057 22,266 25,069 24,609 28,565 30,822 34,432 35,165 36,723 41,639 39 52 Others specifi not elsewhere Item 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Table A1.14 continued Table $ = Australian dollars. $ = Australian excluded. Funds Special funded from and expenditure expenditure, funded activities, local government Donor Note: Offi Statistics Kiribati National Source: 222 Kiribati Social and Economic Report 2008 Continued on next page 124 902 51 357 22 508 524 392 4 0 1,410 1,717 2,408 1,673 1,2421,227 7,867 1,067 9,291 1,250 6,549 1,336 4,698 1,442 2,576 1,827 2,017 2,260 2,563 2,513 22,057 22,266 25,069 24,609 28,565 30,822 34,432 35,165 36,723 41,639 20,688 29,065 20,675 29,654 47,985 94,737 133,407 143,046 85,815 81,882 b a a a ($ ’000, nominal prices) c Wages and Salaries Wages of Goods and ServicesPurchases TransfersSubsidies and ExpenditureCapital Other 5,086 2,699 of Goods and ServicesPurchases 3,465 3,888TransfersSubsidies and 13,817 ExpenditureCapital 3,608 10,180 30,276Other 20,139 2,572 53,285 12,179 635 3,432 48,776 10,375 50,108 3,554 792 12,891 52,305 3,529 29,548 111 41,497 726 70,846 3,970 125 83,855 932 0 2,142 23,783 13 5,025 880 33,054 2 4,755 1,016 19 81 1,007 7 24 70 1,111 3 1,267 3 86 1,281 6 79 2 44 97 4 10 51 6 32 46 4 48 20 35 139 114 Wages and Salaries Wages Purchases of Goods and ServicesPurchases TransfersSubsidies and ExpenditureCapital and Net Lending Paid Interest 22,490 25,712 22,997 1,204 27,243 (66) 42,030 2,484 5,251 48,012 5,991 4,461 0 33,072 2,024 51,382 9,337 5,226 5,746 34,332 10,413 31,805 14,671 0 4,837 12,329 7,838 0 7,672 7,592 4,059 7,235 0 273 6,514 0 5 0 0 0 Wages and Salaries Wages Local Government Expenditure Government Local 2,054 2,056 2,082 2,369 2,449 2,941 3,082 3,427 4,023 3,947 Development Fund Expenditure Fund Development Item Expenditure Fund Consolidated 50,936 54,923 68,620 64,289 91,012 96,000 1997 83,014 98,198 1998 78,563 1999 79,963 2000 2001 2002 2003 2004 2005 2006 Table A1.15: Kiribati Government Expenditure by Funding Source and Type A1.15: and Source Funding by Expenditure Table Government Kiribati Appendix 1 223 – – – – s. opean Union, ( ) = negative value, $ = Australian dollars. $ = Australian value, ( ) = negative opean Union, t are part of total expenditure. Consequently, total expenditure is total expenditure Consequently, part of total expenditure. t are ce, which is the source of data in this table, includes estimates of the aid-in-kind expenditure. However, the However, of data in this table, includes estimates the aid-in-kind expenditure. ce, which is the source Offi Statistics the Kiribati National by e statistics prepared ce. cult to estimate. to cult the component transfers between are as there expenditure government total recorded exceeds e total of the four funding sources RERF Management Fee 1,301 1,356 1,473 1,947 1,101 1,902 1,028 1,400 899 Freight SubsidyFreight ExpenditureSTABEX-funded Other 278 1,204 1,151 1,137 1,337 1,850 1,268 1,505 143 0 1,509 89 2,008 0 1,984 133 0 1,870 241 1,588 108 0 370 0 155 74 94 in the budget system bu not recorded contributions of donors are In-kind actual cash expenditure. system only reports e Budget Item ExpenditureSpecial Fund 2,873 3,986 4,011 5,543 1997 2,718 1998 4,280 1999 3,167 2000 3,344 2001 2,581 2002 2003 – 2004 2005 2006 Th Includes the contribution to the Provident Fund. the contribution to Provident Includes Table A1.15 continued Table underreported in budget documents. Th underreported is diffi of in-kind expenditure value Offi Statistics Kiribati National Source: Note: Th Note: – = data unavailable, RERF = Revenue Equalisation Reserve Fund, STABEX = former export earnings stabilization scheme of the Eur STABEX Fund, Reserve Equalisation RERF = Revenue – = data unavailable, a b 224 Kiribati Social and Economic Report 2008 Continued on next page cation 14,049 21,178 13,090 11,660 14,711 31,145 72,398 85,375 24,108 t Institutions t 2 1,180 30 24 22 18 15 35 13 a ($ ’000, nominal prices) Acquisition of Fixed Capital of Fixed Acquisition EquipmentTransport BuildingsLand Construction SystemWater/Sewerage 13,397 20,153 353 12,479 11,162 1,299 89 770 14,423 4,511 2,575 10,490 30,643 75 4,365 1,006 7,636 71,895 3,231 437 1,360 85,010 356 7,600 1,277 24,104 665 1,331 5,110 6,316 3,207 3,443 3,459 16,130 1,892 23,125 5,814 17,635 1,931 17,879 11,316 3,609 1,304 119 6,196 Expenditure on Goods and ServicesExpenditure and Salaries Wages Fund Provident to Contribution 54,329Other Purchases PaidInterest 55,674TransfersSubsides and Enterprises Public Subsidies to 57,505 926 SubsidyFreight 71,783 23,768 SubsidyCopra 1,273 Nonprofi to 105,037Transfers 23,777 1,278 142,127 29,635 27,449 6,038 7 129,757 30,624 1,303 26,315 148,465 8,279 28,778 0 54 29,652 1,380 131,979 10,369 1,151 44,165 38,602 4,022 1,973 0 8,293 278 1,337 74,005 43,175 2,565 101,552 520 10,263 1,204 1,268 226 40,846 84,017 3,128 14,052 2,537 39,803 1,137 1,505 104,491 12,661 4,181 0 5,636 1,850 87,995 1,509 10,440 3,542 2,008 12,817 0 0 2,865 1,984 0 4,120 0 1,870 1,588 0 0 0 0 0 0 Transfers to Households to Transfers Abroad Transfers 4,549 4,009 51 2,917 3,808 495 5,130 995 5,449 586 6,110 1,065 4,571 941 6,081 1,010 1,099 1,015 Item Expenditure Recurrent 60,367 63,953 68,100 1997 80,076 115,300 1998 156,179 1999 142,418 158,905 2000 144,796 2001 2002 2003 2004 2005 Capital Expenditure Capital Table A1.16: Classifi Economic by Expenditure Government Table Consolidated Kiribati Appendix 1 225 d local government expenditure. Transfers between these funding between Transfers expenditure. d local government t are part of total expenditure. Consequently, total expenditure is total expenditure Consequently, part of total expenditure. t are ce, which is the source of data in this table, includes estimates of the in-kind expenditure. However, the However, of data in this table, includes estimates the in-kind expenditure. ce, which is the source 0000 00000 Offi Statistics the Kiribati National by e statistics prepared ce. cult to estimate. to cult an Funds, Special Fund, the Development the Consolidated Fund, from the central government by total expenditure is table shows in the budget system bu not recorded contributions of donors are In-kind actual cash expenditure. e budget system only reports Machinery and EquipmentOther 5,791 of Land Purchase Enterprises to Transfers Capital 436 BanksVillage 152 673Domestic 2,198 623 652Abroad 3,517 379 825 9,890 786 51 19,760 0 2,523 33,434 351 200 4,328 5,823 15 288 5,174 560 0 502 70 2,815 147 7,053 0 503 86 0 5,000 365 85 0 0 4 106 0 0 56 0 0 67 0 47 0 139 0 0 underreported in budget documents, Th underreported value of in-kind expenditure is diffi of in-kind expenditure value Item Minus RepaymentsLending 1997 Expenditure Total 1998 15 1999 70 2000 5,086 74,431 2001 85,201 85 2002 86,276 106 2003 91,821 130,117 2004 56 187,380 214,883 2005 244,327 67 169,043 47 139 Th Table A1.16 continued Table sources have been netted out where possible. been netted out where have sources $ = Australian dollars. $ = Australian Th Note: a Source: Kiribati National Statistics Offi Statistics Kiribati National Source: 226 Kiribati Social and Economic Report 2008 Continued on next page 17,070 20,282 20,651 23,867 23,225 21,949 19,036 18,500 21,005 a ($ ’000, nominal prices) Fishing LicensesFishing Other Interest and Incidental SalesFees and ForfeitsFines 29,434 5,560 40,323 1,229 9,697 31,930 1,802 74 5,379 31,159 1,752 7,338 169 46,605 1,649 14,604 41,719 51 14,146 1,544 30,118 9,008 28,938 2,465 28 24,957 5,984 1,585 62 6,513 5,280 42 927 98 86 87 Personal Income Tax Tax Income Personal TaxCorporate Import Duties Other Taxes Income Entrepreneurial 4,040RERF Interest/Dividends 3,733 2,790 10,044 4,453 2,775 12,265 1,730 8 4,130 3,388 13,299 1,925 5,574 27 13,907 4,744 1,970 4,967 14,340 4,100 10 2,244 6,042 16,572 3,621 2,075 17,768 5,728 9 3,448 17,673 2,585 6,139 5,770 22 16,567 2,577 5,035 902 2,525 1,141 2,762 1,261 1,319 Tax Revenue Revenue Tax Nontax Revenue 18,604 20,698 23,110 53,375 25,025 72,300 26,089 59,773 27,745 64,050 29,835 86,062 31,696 81,223 30,503 60,986 60,049 54,808 Item RevenueCurrent 71,979 92,998 1997 1998 82,883 1999 89,075 2000 112,151 108,968 2001 90,821 2002 91,745 2003 85,311 2004 2005 Capital RevenueCapital Grants and Grants Revenue Total ExpenditureTotal Budget Balance 15 92,561 124,940 110,937 49 20,567 74,431 118,868 146,571 31,893 85,201 40 18,130 182,450 28,014 86,276 190,842 39,739 18 91,821 29,775 223,476 24,661 130,117 168,159 34,296 27,047 124 187,380 73,435 214,883 16,454 244,327 100,008 47 (4,930) 169,043 131,722 (24,041) 13 (20,851) 82,847 (884) 9 1 Table A1.17: and Budget Balance Revenue Government Table Consolidated Kiribati Appendix 1 227 d local government revenue and expenditure. Transfers between between Transfers and expenditure. revenue d local government ce. an Funds, Special Fund, the Consolidated fund, Development from the central government by total expenditure is table shows Total Revenue and Grants Revenue Total ExpenditureTotal Budget Balance 150 164 121 136 29 112 146 52 106 173 113 30 206 154 33 212 211 19 255 238 (6) 210 279 (27) 211 (24) (1) Ratio GDP (%) to item in this table. as a revenue the RERF is treated e income from ItemMemo Items: 1997 1998 1999 2000 2001 2002 2003 2004 2005 Th Source: Kiribati National Statistics Offi Statistics Kiribati National Source: these funding sources have been netted out where possible. been netted out where have these funding sources GDP = gross domestic product, RERF = Revenue Equalisation Reserve Fund, ( ) = negative value, $ = Australian dollars. $ = Australian value, ( ) = negative Fund, Reserve Equalisation RERF = Revenue domestic product, GDP = gross Th Note: a Table A1.17 continued Table 228 Kiribati Social and Economic Report 2008

Table A1.18: Government of Kiribati Budget Position, Including External Contributions ($ ’000, nominal prices) 2005 2006 2007 2008 2009 Item (Preliminary) (Revised (Draft (Projected) (Projected) Estimate) Budget) Total Revenue 164,678 165,058 136,178 136,920 137,177 and Grants Recurrent Revenue 81,831 83,176 84,078 84,870 85,077 Taxa 28,300 28,643 28,859 29,829 30,127 Nontax 53,531 54,533 55,219 55,041 54,950 - RERF Interest/ 21,005 21,005 21,005 21,005 21,005 Dividends - Other Special 2,145 2,145 2,145 2,145 2,145 Fund Revenue - Fishing 24,957 25,784 25,973 25,061 25,000 Licenses - Other 5,424 5,599 6,096 6,830 6,800 Grants 82,847 81,882 52,100 52,050 52,100 Total Expenditure 166,959 166,483 139,403 137,299 139,829 Recurrent Expenditure 81,144 84,601 87,303 85,249 87,729 Sourced from the 78,563 82,020 84,722 82,668 85,148 Consolidated Fundb Sourced from 2,581 2,581 2,581 2,581 2,581 Special Funds Development 85,815 81,882 52,100 52,050 52,100 Expenditurec Budget Balance (2,281) (1,425) (3,225) (379) (2,652) Memo Item: Alternative (22,850) (21,994 ) (23,794 ) (20,948) (23,221) Budget Balanced

RERF = Revenue Equalisation Reserve Fund, ( ) = negative value, $ = Australian dollars. a Tax revenue projected to grow by 1% in 2009. b Recurrent expenditure sourced from the Consolidated Fund is projected to grow by 3% in 2009. c From 2006 to 2009 development expenditure is assumed to equal the level of grants. d Th is alternative estimate excludes income from the RERF as a revenue item, as well as other Special Fund revenue and expenditure.

Source: Consultants projections based on Kiribati Statistics Oﬃ ce, Government Finance Statistics (GFS), 2007 budget papers, and data supplied by the Ministry of Finance and Economic Development. Appendix 1 229

Table A1.19: Kiribati: Cash Employment by Industry Group, 2005

Persons Share of Total Employed Cash Employment Industry Group (Number) (%) Agriculture and Fisheries 936 7.1 Construction 511 3.9 Electricity 293 2.2 Financial Services 356 2.7 Hotels/Motels 223 1.7 Manufacturing 305 2.3 Mining 0 0.0 Public Administration 6,953 52.9 Retail Trade 1,179 9.0 Transport/Communications 1,473 11.2 Wholesale Trade 471 3.6 Note stated 433 3.3 Total 13,133 100.0

Source: Kiribati National Statistic Oﬃ ce. 230 Kiribati Social and Economic Report 2008

Table A1.20: Kiribati: Economic Activities of Adult Population, 2005 (Number)

Persons by Age Group Persons by Sex Activity 15–24 25–49 50+ Total Female Male Kiribati Cash Work 2,016 9,657 1,460 13,133 5,038 8,095 Village Work 5,628 11,810 4,144 21,582 10,794 10,788 Home Duties 1,260 3,776 1,041 6,077 5,284 793 Unemployment 1,307 839 108 2,254 1,124 1,130 Inactive 1,657 1,681 324 3,662 1,666 1,996 Old 0 0 3,227 3,227 2,048 1,179 Disabled 99 209 177 485 191 294 Student 7,257 66 0 7,323 3,827 3,496 Prisoner 16 40 15 71 7 64 Mental Institution 12 64 16 92 36 56 Hospital 24 62 46 132 84 48 Mission 1 40 20 61 38 23 Not Specifi ed 90 109 42 241 116 125 Total 19,367 28,353 10,620 58,340 30,253 28,087 South Tarawa Cash Work 1,394 5,873 801 8,068 3,226 4,842 Village Work 1,422 2,950 900 5,272 3,015 2,257 Home Duties 596 1,873 460 2,929 2,476 453 Unemployment 959 605 68 1,632 853 779 Inactive 1,041 1,221 180 2,442 1,180 1,262 Old 0 0 1,787 1,787 1,118 669 Disabled 44 91 74 209 85 124 Student 3,616 61 0 3,677 1,899 1,778 Prisoner 14 39 13 66 4 62 Mental Institution 4 29 8 41 11 30 Hospital 24 62 46 132 84 48 Mission 0 17 18 35 23 12 Not Specifi ed 88 106 35 229 112 117 Total 9,202 12,927 4,390 26,519 14,086 12,433 Continued on next page Appendix 1 231

Table A1.20 continued Persons by Age Group Persons by Sex Activity 15–24 25–49 50+ Total Female Male Outer Islands Cash Work 622 3,784 659 5,065 1,812 3,253 Village Work 4,206 8,860 3,244 16,310 7,779 8,531 Home Duties 664 1,903 581 3,148 2,808 340 Unemployment 348 234 40 622 271 351 Inactive 616 460 144 1,220 486 734 Old 0 0 1,440 1,440 930 510 Disabled 55 118 103 276 106 170 Student 3,641 5 0 3,646 1,928 1,718 Prisoner 2 1 2 5 3 2 Mental Institution 8 35 8 51 25 26 Hospital 0 0 0 0 0 0 Mission 1 23 2 26 15 11 Not Specifi ed2371248 Total 10,165 15,426 6,230 31,821 16,167 15,654

Source: Kiribati National Statistics Oﬃ ce (2007). 232 Kiribati Social and Economic Report 2008

Table A1.21: Kiribati Education Enrollment by Island, 2006 (Number)

Primary Junior Secondary School Island Female Male Total Female Male Total Gilbert Group Banaba 60 54 114 151 15 166 Makin 190 170 360 103 87 190 Butaritari 333 350 683 226 162 388 Marakei 270 319 589 114 108 222 Abaiang 473 511 984 193 193 386 North Tarawa 439 519 958 118 95 213 South Tarawa 3,244 3,234 6,478 1,708 1,451 3,159 Maiana 160 190 350 0 0 0 Abemama 261 249 510 91 95 186 Kuria 95 103 198 0 0 0 Aranuka 117 112 229 0 0 0 Nonouti 346 361 707 111 86 197 North Tabiteuea 344 322 666 143 150 293 South Tabiteuea 125 132 257 45 82 127 Beru 182 162 344 79 92 171 Nikunau 182 185 367 84 87 171 Onotoa 148 161 309 97 69 166 Tamana 75 90 165 29 42 71 Arorae 82 111 193 50 50 100 Subtotal 7,126 7,335 14,461 3,342 2,864 6,206

Line and Phoenix Group Teeraina 99 101 200 70 63 133 Tabuaeran 248 253 501 115 92 207 Kiritimati 439 407 846 193 171 364 Kanton 6 6 12 0 0 0 Subtotal 792 767 1,559 378 326 704

Total 7,918 8,102 16,020 3,720 3,190 6,910

Note: Maiana, Kuria, and Aranuka have combined secondary schools.

Source: Kiribati Ministry of Education, Youth and Sports (2006). Appendix 2 233

Persons Consulted

Name Position and Organization Aberira Taniera Senior Accountant (Accounts), Ministry of Finance and Economic Development (MFED) Adam Blundell Scholarships Offi cer, Australian Agency for International Development (AusAID) Akaaka Merimeri Coordinator, Chamber of Commerce Anne Quinane Australian High Commissioner Anterea Tawaia Offi cer in Charge (OIC), Kiribati Ports Authority Anterea Tawaia Manager, Tarawa Biscuit Company Limited Aren Ueara Teannaki Director of Social Aff airs, Ministry of Internal and Social Aff airs (MISA) Bana Ieremia Nongovernment Organization (NGO) Development / HIV/AIDs Coordinator, KANGO Baraniko Baaro Chief Executive Offi cer (CEO), Air Kiribati Limited Baraniko Tonganibeia CEO, Telecom Services Kiribati Limited Bereti Awira New Zealand’s International Aid & Development Agency (NZAID) Offi cer, New Zealand High Commission Bureti Tewareka Assistant Secretary, Ministry of Public Works and Utilities (MPWU) Bwebwe Tuare Rural Development Offi cer, MISA Captain Itibwinnang Aiaimoa General Manager, Kiribati Shipping Services Limited 234 Kiribati Social and Economic Report 2008

Name Position and Organization Captain Baro Lucic Captain Superintendent, Maritime Training Centre, Ministry of Transport and Communications (MTC) Captain Peter Lange Manager, South Pacifi c Marine Services (SPMS) Craig Rickit New Zealand High Commissioner David Yeeting Permanent Secretary, Ministry of Communications, Transport and Tourism Development (MCTTD) Dr. Iete Rouatu Director of Planning and Statistics, MFED Dr. Krassimira Barbova Director, Mental Hospital, Ministry of Health and Medical Services (MHMS) Dr. Sheila Walterman Medical Offi cer, United States (US) Peace Corps England Iuta OIC, Telecommunications Authority of Kiribati Frank Hegerty Adviser, Kiribati Institute of Technology (KIT) Ioeru Tokantetaake Commissioner, Kiribati Police Service Jane Curran HRD Adviser, Public Service Offi ce Jason Court First Secretary (Development Cooperation), Australian High Commission Kaiarake Taburuea Project Manager, Kiribati Adaptation Programme (KAP) II Kanata Tebebeku Deputy Director, Kiribati National College of Nursing Kang Yun Jong Chief Field Offi cer, United Nations Children’s Fund (UNICEF) Katarina Tofi nga CEO, Kiribati Copra Mill Company Appendix 2 235

Name Position and Organization Kate Kennet Australian Youth Ambassador Volunteer, World Health Organization (WHO) Katimira Nabatiku Assistant Director, Catholic Women’s Group (Itoiningaina) Kautuna Kaitara Project Coordinator, KAP II Kietau Tabwebweiti General Manager, Development Bank of Kiribati Kinai Kairo Director of Agriculture, Ministry of Environment, Land and Agricultural Development (MELAD) King KumKee Manager, King Holdings Limited Kinta Eram Statistics Offi cer, Ministry of Education, Youth and Sports (MEYS) Libby Hegerty Curriculum Adviser, MEYS Linda Uan and John Anderson Owners, Tabera ni kai media services Loleina Auriaria OIC, Kiribati Insurance Corporation Mamae Robwate Coordinator, HIV/AIDS Task Force Matereta Ramin Tax Commissioner, MFED Mayfung Ng Kamho Audit Offi cer (Public Companies), Kiribati National Audit Offi ce (KNAO) Mele Pulo Offi cer, Ministry of Labour and Human Resources Development (MLHRD) Michael Cantsilieris General Manager, Bank of Kiribati Mike Koff man Director, US Peace Corps Moataake Burentoun OIC, Rural Planning Division, MISA Bairenga Kirabuke Administrator and President, Kiribati Protestant Church Women’s Group Nauto Tekaiara Principal, Kiribati Teachers College 236 Kiribati Social and Economic Report 2008

Name Position and Organization Nnankina Iotebwa Director, Kiribati Family Health Association Norma Yeeting, Faitele Mika, National Economic Planning Offi ce staff , Nuntaake Tokomauea, MFED and Taare Aukitino Peter Tong Permanent Secretary, Ministry of Fisheries and Marine Resources Development (MFMRD) Raikaon Tumoa Principal Fisheries Offi cer (Projects) Raimon Taake Auditor General, KNAO Ramanibina Aata Offi cer, Kiribati Family Health Association Reeti Takirua Statistics Offi cer (National Income) Riteti Maninraka Permanent Secretary, MHMS Reverend Teeruro Ieuti Secretary for Education, Kiribati Protestant Church Rikiaua Takeke Permanent Secretary, MISA Roger Wate Consultant, Phoenix Islands Protected Area (PIPA), MELAD Rubee Eromanga Deputy Principal, KIT Rutete Ioteba CEO, Kiribati Oil Company Limited Saitofi Mika Economist, Aid Coordination Unit, MFED Samuel Chen Ambassador, Embassy of Taipei,China Sgt. Eribwebwe Sexual Assault Unit and Statistics, Kiribati Police Service Sister Ioana Alcoholics Anonymous Sister Maritina Tawita Assistant, Women’s Crisis Centre Sister Rosarin Director, Women’s Crisis Centre Sister Tiura Kaiuea Director, Catholic Education Offi ce Appendix 2 237

Name Position and Organization T. Nauan Bauro General Manager, Kiribati Fisheries Services Taakei Taoaba Permanent Secretary, MLHRD Taam Biribo Secretary to Cabinet Taiaki Irata Project Manager, European Union– European Development Fund NSA Health Project Tanginako Mikaere Information Technology Manager, MFED Tangitang Kaureata Budget Offi cer, MFED Taniera Teibuako Executive Manager (Finance), Tarawa Motors Taom Kaitara CEO, Television Kiribati Limited Taouea Tiaeki Finance Manager, Kiribati Oil Company Limited Tarataake Teannaki Director of Tourism, MCTTD Tata Teitiaua General Manager, Kiribati Supplies Company Limited Teaki Tine Database Offi cer, Public Service Offi ce Teboia Metutera CEO, Public Utilities Board Teboranga Tioti Acting Deputy Secretary, Public Service Offi ce Teea Tiira Permanent Secretary, MFED Teibaba Abera CEO, Kiribati Copra Cooperative Society Limited Tekaabei Kaoma Secretary for Development, Kiribati Protestant Church Tekaai Mikaere Manager, Shipping Agencies of Kiribati Tekaai Mweretaka Deputy Principal, Fisheries Training Centre Tekena Tiroa Director of Statistics (ag) 238 Kiribati Social and Economic Report 2008

Name Position and Organization Tekeraoi Nangka General Manager, Kiribati Housing Corporation Tekiaa Baiteke Secretary, Public Service Commission Tekoa Ietaake Permanent Secretary, MEYS Temaia Ereata General Manager, Betio Shipyard Limited Temaia Mackenzie Deputy Accountant General, MFED Teoaiti Tetoa Nurse-in-Charge, Mental Hospital Terubentau Akura CEO, Kiribati Solar Energy Company Limited Tessie Lambourne Permanent Secretary, Ministry of Commerce, Industry and Cooperatives (MCIC) Tiem Ienraoi General Manager, Otintaai Hotel Tiimi Kaiekieki Chief Economist, MFED Tokaata Niata General Manager, Kiribati Provident Fund Tororo Tearawa Accountant General, MFED Toti Tekinaeti Director of Fisheries (ag), MFMRD Tukapu Teroroko Director, PIPA, MELAD Viane Taoaba President, Chamber of Commerce

At Kiritimati Buatia Buatia Botaki ni unimane Ereti Tekabaia Ministry of Line and Phoenix Islands Development (MLPID) Fr. Arobati Rikare Catholic Church Dr. John Tekanane MHMS Kiraren T Tebetanga Tourism (MCTTD) Appendix 2 239

Name Position and Organization Mapuola Iosus MLPID Miire Raieta MLPID Nautonga Anterea Agriculture (MELAD) Paul Jones Consultant Team leader, Kiritimati Island Development Plan Retiina Ianang MEYS Taunga W Smith Petﬁ sh Association Tiviata Betero Lands (MELAD) Pacific Studies Series Pacific Studies Series Kiribati Social and Economic Report 2008 After two impressively peaceful decades, there are signs of a dangerous degree of complacency in Kiribati’s view of its domestic and external affairs. Forms of cultural and political resistance to change have thus been encouraged, and these are handicapping the nation’s response to development risks. Eight leading sources of development risk confronting Kiribati are identified, and these require understanding and appropriate responses in the form of well-formulated national development strategies. Based on a thorough assessment of risks, priorities, and options by sector in the main report, 16 policy actions are recommended as keys to the full range of responses that need to be formulated to cope with development risk.

Kiribati Social and Economic Report 2008 MANAGING DEVELOPMENT RISK

Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines www.adb.org ISBN 978-971-561-777-2 Publication Stock No. BBK221008 Printed in the Philippines