Celtic Tiger - an endangered species?

Ireland's tiger economy risks extinction as the international IT habitat that gave it life verges on collapse. Multinational IT companies were the cash cows that weaned the sector in the 1990s. Now, Gateway has confirmed it will cease all operations here, and indeed across Europe, at the cost of 900 jobs. This brings the total number of jobs lost in the IT sector to 4,500 so far this year. And more are to come.

Ireland, a small open economy on the periphery of Europe, thrived on an aggressive industrial policy in the 1990s which exploited low corporation tax, cheap land and an educated workforce in the eurozone. As a result the country has 97,000 people working in the sector with another 100,000 indirectly employed.

Certainly the country's low corporation tax played a major role in this success, but other factors were involved too. Ireland took great advantage of EU structural funds to upgrade its previously appalling infrastructure.

It is an English-speaking country - which is a big plus for US firms - with a highly educated and technically literate workforce. Land was extremely cheap, and central and local authorities extremely helpful. And, perhaps the most important factors: it's in the EU and the eurozone.

Now, Ireland is the largest exporter of software in the world, bar none, outstripping the US in terms of value. Last year alone it packed off IEP23bn (£18.3bn) in tech exports overall, representing 27 per cent of all Irish exports.

A cursory glance at the European HQs of high-tech multinationals based here reads like a veritable who's who of the global IT industry. Seven of the top 10 software houses have major operations here. Microsoft has its European headquarters are based here, as is IBM's.

Ireland receives 23 per cent of all US investment into Europe. Intel announced last year a $1bn investment in Ireland to produce its new sub-0.2 micron chips. (Although, in a chilling sign of the times that project has been put on hold.)

In short, Ireland has bet heavily on global IT and if it falls, it will fall hard with it. Now the very advantages that created its success could mean over-exposure to a downturn. With 4,500 jobs lost this year, politicians are getting nervous.

"We now have reason to be seriously concerned about the stability of the whole technology sector in Ireland. The government needs to do an urgent and careful assessment of the threats to this sector," opposition TDs (equivalent of MPs) Nora Owen and Richard Bruton told the country's parliament, the Dail, recently.

Has Ireland put all its economic eggs in one basket? And are its chickens coming home to roost?

Probably not, though times are changing. "It will be harder for us to survive," said Joe Tynan, analyst with PricewaterhouseCoopers in Dublin. "I think we will survive. Technology is one of the sectors where a small country like Ireland, on the periphery and with few natural resources, can excel internationally."

The news in Ireland is not all grim. Though 4,500 jobs have gone, another 2,500 have been created so far this year. Most jobs lost in ICT were in cost-driven, low value sectors such as PC assembly, as was the case with Gateway. With production costs rising in Ireland - in part due to its success - jobs will continue to be lost at the shallow end of the value chain.

Indeed, the country's setbacks this year could signal a move up the value chain, albeit one that has been forced by world events. As production becomes more expensive the government will have to create jobs in those sectors that are not so cost-sensitive.

"Companies in cost-driven technology businesses will be very quick to leave when times are bad or cheaper production becomes available elsewhere," said Barry Dixon, analyst with Davy Stockbrokers. "That has always been a risk."

Indeed, last year Ireland lost a 1,000-job investment to Hungary by an unnamed US technology company.

Moving up the value chain is a strategy that has already been employed. "When Seagate closed in Clonmel it was a disaster to the local economy," said an Industrial Development Authority spokesman. "But Guidant [a healthcare company] moved into Seagate's factory and is producing high-precision medical equipment, like pacemakers."

The pay is better at the new plant, which opened three months after Seagate closed, and it uses higher-skilled workers, mostly retrained Seagate employees. In a paradigm shift in this country the IDA's mission statement has changed. Gone is the 'jobs at all costs' mantra of the 1990s. Now the quality of employment is the guiding principle.

This is not necessarily a bad thing. The IDA admitted: "Ireland couldn't have sustained the kind of growth we saw last year. We've said that we need five to seven per cent of job losses at the low-end of the ICT sector every year from now if we're to sustain our growth in industry, and to compete in the new economies we've got to have that."

Finally, Ireland's success in IT is often touted but less well known is its thriving pharmaceutical industry. Most of the top 15 pharmaceutical companies have major operations in Ireland and they account for 25 per cent of exports.

Nobody knows for sure what the long-term economic effects following the tragedies of 11 September will be, but certainly the Irish remain confident their economy will emerge a competitive one. While the country's focus on the ICT sector has created some weakness in a declining market, it has also created a foundation to build upon when times improve.

What's been characterised as Ireland's tiger economy will now disappear out in the wake of dot-com gloom and wider ICT crises, but few will lament its passing.

It's not a Celtic Tigger bouncing into view, however. Instead, an enduring and more sustainable beast will take its place. Celtic Plough Horse, anyone?

by Daithí O hAnluain