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Bursting at the seams

Ireland's construction boom is the envy of the European Union - but is it sustainable? Diarmaid Fleming opens NCE's Ireland special with a review of the challenges facing the country's economy.

The Irish have a reputation for stories, and while scribes like Flann O'Brien and James Joyce have come up with many and varied tales, even the most outlandish of their fables would have appeared more believable to someone only six or seven years ago than the story of Ireland's current economic miracle.

The tale is more Dean Jonathan Swift than the above. A country which was an economic Lilliput until the 1990s is now setting trailblazing figures of growth compared to its European Union cousins.

A doubling in size of the economy since 1993, with an 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 today.

But the speed of the U-turn in fortunes has placed huge strains on the country's infrastructure.

Growing pains would be too mild a diagnosis - the condition is more a life-threatening one in terms of the Irish economy. Failure to improve the country's infrastructure will pose a serious danger to its potential for future economic growth, and its ability to compete with other developed countries and EU counterparts.

Few would want to go back to the old days of emigration and high unemployment. Unsustainable economic policies, stemming from a near-suicidal election manifesto in 1977 which seduced a nation away from an already deeply unpopular coalition government, laid the basis for catastrophic consequences.

Huge state borrowing underwrote the election promises, sending the country into a tailspin of debt of banana republic proportions relative to its size.

IMF foreclosure on the debt threatened in 1986.

The threat of bankruptcy in real terms may have provided the spark for the political establishment to set its house in order.

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

The grim spectre of high inflation has appeared, currently over 6%, but the government and most leading Irish economists shrug this off as an inevitable result of high oil prices and the low value of the Euro - which Ireland has signed up to and is more affected by high trade levels with the US and UK. A recent budget giving generous tax relief was, however, severely criticised by the country's Central Bank and the European Commission. Concerns about a US economic slow down and its effect on Ireland, with high multi-national investment and fears of retrenchment by the IT sector, were painfully realised with the loss of 1,000 jobs in the first week of 2001.

Growth in industry and the economy through the 1990s has not been matched by growth in infrastructure spending, leaving Ireland bursting at the seams.

Inadequate housing stock has seen prices rocket in Dublin, well beyond the reach of most young people buying alone even on professional salaries.

A trip around Dublin in rush hour traffic must rate among the slowest in the developed world.

With the rail network consisting of a north-south line and a Vshape link to towns to the west of the city, most commuters are condemned to appalling traffic jams. Doing business across the capital can sometimes prove impossible during the day, while companies 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 shelved due to lack of water and sewage facilities.

Setting up the National Development Plan in 1999, the Irish government pledged £31bn for the period 2000-2006, of which the EU is putting up around 8%.

The NDP represents the largest ever mobilisation of resources and money in the history of the Irish state. Its execution is being steered by a sub-committee of government ministers chaired by Taoiseach Bertie Ahern.

Around half the NDP is being spent on infrastructure, where spending of £16.5bn in the next six years will triple that for the six years to 2000.

The economic boom has meant a burgeoning private sector, which up to now has accounted for the greater portion of work for the construction industry. High housing prices and demand were responsible for around £5bn, about half the country's estimated £10.6bn construction output last year.

Around £2.5bn went on industrial and commercial developments, with public sector housing and infrastructure work costing around £3bn, under a third the total output.

Private sector spending during the lifetime of the NDP could hit £31bn, according to consultant Project Management Group.

This is almost double the £16.5bn earmarked for infrastructure spend by the state, so the private sector would continue to account for two thirds of construction ouput.

Housing will remain the engine of private sector construction work, with around 45,000 new units planned each year costing £23.2bn 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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