Learning from the fall of the Celtic Tiger
“FOR over a decade from the mid-1990s until 2007, Ireland’s economy grew more rapidly than any other in western Europe. Foreign investment poured in. Success at selling abroad made Ireland one of the world’s largest exporters per head. Opportunity attracted the enterprising. In less than a dozen years, a country long known for exporting its people welcomed immigrants in droves.
…As the boom continued, a certain sense of invulnerability seemed to take hold. The Irish took to buying property with such abandon that there was soon a credit-inflated bubble in property prices. Since that bubble burst in 2007, everything has changed. The economy has shrunk by a tenth—economists’ definition of a depression. The rate of joblessness has tripled. Banks are hobbling and Ireland’s public finances are in tatters.”
THE ECONOMIST (26 November 2009)
Ireland needs to be a cautionary tale for Kenya. For decades this country was an underachiever, failing to achieve any meaningful growth in its economy and sitting on the poorer fringes of Europe. Its resilient people were the butt of jokes, more famous for being immigrants everywhere else rather than developing their own country. Sound familiar so far?
Then the country suddenly began to take off. A combination of policies created a sudden boom, instilling a new confidence in the Irish and allowing them to take their place at the continent’s top table. A new spirit of enterprise filled the land, and those who had lost faith in their country and left for greener pastures actually began returning home, accompanied by booming foreign investment.
But the Celtic Tiger, it seems, was made of paper. The country’s upturn was reflected most in two places: booming banks and booming property prices. That, it turns out, is a very dangerous combination. Banks kept making outrageous profits, even as the country seemed to lack any other economic engine. The Irish whose incomes were rising all rushed into property, aided by easy-credit polices from lenders. And financial regulators seemed to have a cosy and friendly relationship with those they were supposed to be monitoring.
It all came apart in 2007, and Ireland is now in serious financial difficulty. Many of its banks are in danger of failure, and unemployment is acute. In Kenya, we too enjoyed a modest boom from 2004 to 2007. Short-lived though it was, it was sufficient to drive up the stock exchange and send property prices rocketing. Banks have been announcing bumper profits year after year, even when the rest of the economy is in recession.
I hope our policy mandarins are paying attention. There is one thing Kenyans share in common with the Irish: what The Economist calls a “pre-modern” attachment to owning property. No Kenyan, it seems, feels accomplished or grounded until he or she has bought a plot of land and built on it. That is the measure of our achievement in life, and we will beg, borrow or steal to attain it.
If we are to generate the sort of sustained and genuine boom that will deliver Vision 2030, we must move away from outdated practices. We must imagine success beyond beacons and title deeds. We must understand that we live in a world where success now comes from the contents of your head, not the soil on which you stand. We must make banks and financial institutions the handmaidens of development, not the brides. We must invest in knowledge, innovation and science and build a genuine competitive advantage in real products and experiences.
We are very prone to getting carried away in this country and pumping up bubbles. Our future lies in making and doing things better than others, not in building a cheap-credit economy in which property is the key asset. Let us learn that lesson before we find ourselves sharing a bad Irish joke.
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