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Backing the boom

After centuries of underdevelopment the Irish economy is now booming and investment in new infrastructure is at an all time high as Diarmaid Fleming discovers

The Irish have a reputation for stories. But the outlandish fables from writers such as Flann O'Brien or James Joyce would have appeared more believable only six or seven years ago than an account of Ireland's current economic miracle.

The story belongs more to Jonathan Swift. A country which was an economic Lilliput until the 1990s is now setting trailblazing growth figures compared to its European Union cousins. A doubling in size of the economy since 1993 with average annual economic growth of 9.3% outstripping the EU average three-fold, has helped change the country from the EU's largest exporter of people in the late 1980s to the world's largest exporter of computer software.

The speed of the U-turn in fortunes has placed huge strains on the country's infrastructure however, bringing parts designed in the 19th century hurtling into the 21st. Growing pains would be too mild a diagnosis - failure to improve the country's infrastructure will pose a serious danger to the country's potential for economic growth, and ability to compete with other developed countries and its EU counterparts.

Few would want to go back to the old days.

Emigration, part of the country's folklore for centuries, abated briefly in the 1970s after massive haemorrhages of youth in the 1950s and 60s, only to return to similar levels in the late 1980s. Unsustainable economic policies, stemming from a nearsuicidal election manifesto in 1977 which seduced a nation away from an already deeply unpopular coalition government, laid the basis for catastrophic consequences. PAYE workers, around 60% of the population, paid 85% of the state's income tax bill in the mid-1980s, leading to savage rates of personal taxation of more than 50%.

Bitterness over this and a thriving black economy operated by those outside the tax net, brought hundreds of thousands of workers onto the streets in 1978 and 1979 demanding - without success - tax reform. Huge state borrowing underwrote the election promises, sending the country into a tailspin of debt. IMF foreclosure was threatened in 1986.

The threat of bankruptcy in real terms may have provided the motivation for the political establishment to set its house in order. Prudent domestic economic policies; the garnering of maximum benefit from European funding through, sometimes clever, diplomacy in Brussels; intensive scouring of overseas markets for export and inward investment opportunities were key factors in the progress to economic success.

But probably the driver of the change was the adoption of a consensus approach to economic development by the state, the private sector and the trade unions. A series of three year national agreements provided stable economic conditions, the resulting fertile economic climate attracting huge inward investment from multi-nationals, particularly in the computer and pharmaceutical industries, as well as offering conditions for home industry growth.

The grim spectre of inflation has appeared, currently running at over 6%, but the government and most leading Irish economists shrug this off as the inevitable result of high oil prices and the low value of the Euro which affect the country is greatly, given its high levels of trade with the US and UK.

A recent budget giving generous tax relief was severely criticised by both the country's Central Bank and the president of the European Central Bank. Concern over a US economic slowdown and its effect on Ireland with high level of multinational investment and fears of retrenchment in the IT sector were painfully realised with the loss of a thousand jobs in the first week of 2001.

Growth in industry and the economy throughout the 1990s has not been matched by growth in infrastructure spending, meaning that Ireland is literally bursting at the seams. Inadequate housing stock has seen prices rocket to obscene levels in Dublin, well beyond the reach of most young people buying alone, even on professional salaries.

A trip around Dublin during rush hour traffic must rate among the slowest in the developed world. With the network consisting of a northsouth line and what the cynical might describe as an appropriately V-shape link to towns west of the city, most commuters are condemned to the city's road system and its appalling traffic jams.

Doing business in several different locations across the capital can sometimes prove impossible during the day, while companies doing business across the country have to factor in severe delays on roads peppered with bottlenecks through small towns. Development of business outside the capital can be hampered by inadequate utilities, with some schemes having to be shelved due to lack of water and sewage facilities.

Having created the right economic climate, the Irish government does not want to see its rich harvest fail. Setting up the National Development Plan in 1999, it pledged Irú41bn ($49bn) to be spent between 2000 and 2006. Contrary to much opinion, little of this money is provided by the EU, which is putting up around 8%. The rest is being provided from the state's coffers, which like its infrastructure, are overflowing as never before.

The NDP represents the largest ever mobilisation of resources and money in the Irish state. Its importance is such that control of its execution is being steered directly by a subcommittee of government ministers chaired by the Taoiseach Bertie Ahern at monthly progress meetings with top civil servants.

Around half the NDP is being spent on infrastructure, where spending of IRú21bn in six years to 2006 will triple that for the six years to 2000.

The economic boom has also resulted in a burgeoning private sector, which until now has accounted for the greater proportion of the construction industry's workload. High housing prices and high demand for homes accounted for around IRú6bn; around half the country's estimated IRú14.1bn construction output last year. Around IRú3bn went on industrial and commercial developments, with public sector housing and infrastructure work costing around IRú4bn: less than a third of the total output.

Private sector spending during the lifetime of the NDP could hit IRú41.3bn, according to consultants Project Management Group - almost double the IRú21bn earmarked for infrastructure spend by the state, meaning the private sector would continue to account for two thirds of construction ouput.

Housing will remain the engine of private sector construction, with around 45,000 new units planned each year costing IRú30.9bn to build over the next six years.

Other chunks of work will come from expansion in the IT and pharmaceutical sectors, investment in new power stations and expansion of the country's gas grid.

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