Kiribati's economic prospects are limited by its small size in terms of both geographical area and population, its remote location, and the absence of any valuable mineral resources now that the phosphate deposits are exhausted. The population size not only means that there is not a domestic market of sufficient size to support any serious manufacturing, but that there is limited provision of services. There is only 1 bank, and as a monopoly , its services will tend to be expensive and the range of services limited.
On the positive side, Kiribati has a tropical location with good facilities for an expansion of tourism. Moreover, the marine fishing resources are excellent and can provide for expanded local production and employment and even be the basis of some manufacturing, such as fish processing and canning. Finally, the national revenue from the phosphate fund remains a vital, and secure, source of foreign exchange.
However, to make the most of its tourism and fishing grounds, it is important that Kiribati attract foreign investment into these sectors. The fishing is large-scale and requires expensive fishing fleets together with equipment and installations for storage. Tourism needs high-quality hotels and international marketing. The current development plan recognizes these needs, but it remains to be seen how successful Kiribati will be in implementing the plan. A recent initiative is the agreement to lease land on Christmas Island to the Japanese National Space Agency, who will build a space shuttle launch facility there. Under the arrangement Kiribati will be paid just under $1 million a year in leasing fees. A research project is under way to use coconut oil to power internal combustion engines for electricity generation, and this may well contribute to energy self-sufficiency, as will the expansion of solar power on the outlying islands.
Overall, Kiribati can be expected to maintain its lower middle-income status in the immediate future, but its long-term growth prospects depend on its ability to expand tourism and undertake more of the exploitation of its fishing grounds rather than licensing foreign fleets.