European Economies: Ireland's Boom Rolls With Viagra (Update1)
Bloomberg News
October 2, 1998, 7:32 a.m. ET
European Economies: Ireland's Boom Rolls With Viagra (Update1)
(Adds September unemployment rate, 8th paragraph.)
Ringaskiddy, Ireland, Oct. 2 (Bloomberg) -- Hundreds of
adults in County Cork in southern Ireland owe their livelihoods
to a drug they call the ''Pfizer Riser,'' the impotence treatment
more commonly known as Viagra.
Pfizer Inc., one of 1,200 foreign companies with operations
in Ireland, recently announced plans to expand by a third its
plant in the small town of Ringaskiddy. That's where the New York-
based pharmaceutical company produces the ingredients for Viagra,
the best-selling new drug in U.S. history.
Pfizer's decision is another sign that Ireland, a country of
3.7 million people on the edge of Europe, is in the midst of an
export-driven boom that just won't quit.
While other countries fret about slowing growth, Ireland's
GDP is on course to expand 8.6 percent this year, according to
the Organization for Economic Cooperation and Development. In
1997, for the third straight year, Ireland was the fastest-
growing economy in the 29-nation OECD.
Fueling this boom are companies like Pfizer and Microsoft
Corp., many of whom were lured to Ireland by corporate tax rates
as low as 10 percent -- and who stayed because they found smart
workers.
''The reason why we came to Ireland -- taxes and talent,''
said Julia McLauchlan, director of Microsoft's Worldwide Product
Group Ireland in Dublin, where the world's largest PC software
company employs 1,000 people to translate its Windows software
into 27 languages.
Bust to Boom
Just 15 years ago, Ireland's GDP was shrinking at an annual
rate of 0.25 percent. Inflation was running at 17 percent,
unemployment was at 16 percent, and the national debt amounted to
120 percent of GDP. Young people left the country in droves, in
search of jobs in the U.S., Britain and elsewhere.
These days, Ireland is delivering high-octane growth with
inflation of 3 percent. Foreign companies now account for 15
percent of the country's total economic output, and the jobs
they've created have helped bring the jobless rate down to 8.8
percent. The exodus of young people has been reversed and debt
has been cut to 66 percent of GDP.
Products like Viagra and Windows, the software that runs
about 90 percent of the world's new personal computers, helped
propel the country's trade surplus to a record 1.75 billion Irish
punts ($2.59 billion) in June. On Sept. 15, the European
Commission approved sales and marketing of Viagra in the 15-
nation European Union, a decision that will give another lift to
Ireland's exports.
Half of the 100 foreign companies that locate in Ireland
annually are U.S. based, and another 15 percent come from the
U.K.
Chemicals and Cows
In the gently sloping hills of Ringaskiddy, a harbor area
outside Cork, the chimneys of chemical and pharmaceutical plants
belonging to Pfizer, Johnson & Johnson and Boston Scientific
Corp. of the U.S., SmithKline Beecham Plc and Nycomed Amersham
Plc of the U.K., and Novartis AG of Switzerland mingle with
church steeples and cows.
At the ''Pfizer Riser'' plant, workers make the powder
version of Viagra, which is then transported to the U.S. and
France to be formed into blue diamond-shaped tablets.
Pfizer first came to Ringaskiddy in 1969. The company's
decision to stay and expand -- the planned 200-million punt
addition to the plant is the fourth in 25 years -- reflects its
continued faith in the government's commitment to keep taxes low
and invest heavily in roads and schools.
''The Irish government created the right environment for
foreign companies,'' said Charlie Hipwell, Pfizer's head of
environmental health and safety at the company's Ringaskiddy
plant.
The seeds of Ireland's 1990's boom were planted in the
1980's. Garret FitzGerald and Charles Haughey, two prime
ministers from opposing parties who alternately held office from
1980 to 1992, led the effort to tame Ireland's runaway debt and
spiraling inflation.
In 1987, the Haughey government and leading trade unions
struck a landmark agreement to hold annual wage increases in line
with the inflation rate -- a pact that was critical to attracting
companies like Microsoft.
'Virtuous Circle'
The same year, the government slashed spending on welfare
and public-sector pay. Those cuts ''sent the signal that finally
authorities had put the lid on mushrooming debt,'' said Dan
McGlaughlin, chief economist at ABN Amro in Dublin.
Ireland's decision to adopt the euro, the common currency
that debuts in January, has given the government another
incentive to keep the reins on spending. Countries joining the
currency union are required to hold debt to 60 percent of GDP and
budget deficits to 3 percent of GDP.
Ireland has already exceeded one of those targets. Last
year, Ireland was one of only two countries in the 11-nation euro
bloc to post a budget surplus -- of 0.9 percent of GDP. The
European Commission predicts that surplus will help Ireland cut
its debt to 59.5 percent of GDP this year.
''We have turned from a vicious circle to a virtuous
circle,'' said David Duffy, an economist at Ireland's Economic
and Social Research Institute.
Ireland has continued to invest in education, even as it has
cut spending in other areas. The number of people attending
colleges and universities has doubled in the past ten years to
10.6 percent of the 18- to 22-year-old population.
Irish officials emphasized their growing force of young,
educated workers when they began wooing technology companies in
the 1980's.
'The Top Guys'
Microsoft marked its 10th year in Ireland this year and
director McGlauchlan said one of the biggest attractions of the
country was the government's quick response to the needs of
industry. Last November, Education and Science Minister Micheal
Martin earmarked 60 million pounds for investment in computer
software education.
''In most countries you can't even get a third-level
government official to return your call,'' McGlaughlan said.
''Here, you get the top guys on the job straight away.''
The export-led expansion of the past four years has also
helped sparked growth in more home-grown industries like
retailing, construction and entertainment. New housing projects
have mushroomed in the hills and valleys surrounding Cork, and
chains of restaurants and retailers have crammed into the city's
bustling center.
''People are fighting hand over fist to set up here,'' said
Marie Minihan, who runs a jewelers' shop on Castle Street.
Like most booms, Ireland's shows some signs of overheating.
The country's 3 percent inflation rate is the second-highest in
the 15-nation European Union, after Greece's. House prices
climbed 15.6 percent in the first six months of the year.
The Central Bank of Ireland has managed to keep inflation in
check with relatively high interest rates. The repurchase rate,
at which banks borrow short-term from the central bank, stands at
6.19 percent, more than double the benchmark rates of 3.30
percent in Germany and France.
Inflation Worries
But, as part of the price of entry into the European
economic and monetary union, Ireland will have to cut its rates
by at least 2.50 percentage points to meet the 3.30 percent
benchmark of Germany, France and the Netherlands. That could
cause inflation to ignite.
The Irish boom is also bumping up against some physical
limitations, particularly roads and rails. Local authorities in
Cork are constructing a tunnel under the River Lee to help
alleviate city center bottlenecks.
But for those people with jobs, a little inflation and a few
traffic jams are a small price to pay for prosperity.
''When I was training about eight years ago, I was looking
around Europe to see where I could maybe pick up a job after
college,'' said David Welsh, head chef in one of Dublin's main
hotels. ''There simply wasn't demand for chefs in Dublin.''
Now there is. ''These days restaurants seem to spring up
overnight,'' said Welsh. ''This is boom time, no question, and
long may it last.''
--Heather Harris in the Frankfurt newsroom (49 69) 92041- |
