Italy is ‘putting its money where its mouth is’ with the Italian Trade Agency (ITA) this year investing more in the US, where exports are booming, than the global total allocated in 2015 to promote Italy’s competitive advantages and high quality industries. ITA President Riccardo Monti explains how the agency aims to communicate the reality of doing business with Italy, looks at the effect reforms are having, and dispels some of the misconceptions surrounding the TTIP.
Italy is at last emerging from a seven-year recession, the deepest since the end of WWII. Data points to a 0.8% GDP growth in 2015, which is to expand further by 1.6% in 2016. If you had to give an economic overview of 2015, what would be your outlook of Italy’s performance last year?
Considering that Italy went through a very severe fiscal consolidation process, we have really been putting the house in order. Italy is one of the few countries apart from Germany to be within the famous 3% general budget deficit prescribed by the European fiscal compact. The Italian stock of debt is large but if you compare it with the stock of wealth, it is sustainable. Italian families indeed possess €8.5 trillion of net wealth.
Italy has done its homework, but of course to grow we need reform, and we are having a number of reforms that are very impressive and we have to acknowledge that this government is showing great courage in bringing in reform. For instance, let us consider the Jobs Act. This is a labor reform that even the former Prime Minister Mario Monti could not pass during a period of emergency.
This shows that Italy and the government have taken very seriously the fact that reform leads to growth. Many important interventions have been undertaken to modernize the Italian economy; speed up the justice system in a more business friendly way; and provide fiscal incentives. A large portion of these measures, I would say a good 75%, has already been implemented. This is why I am confident in the 1.6% growth target for this year.
As far as trade is concerned, we are less exposed to China. It’s good news that imports from China decreased 15% in 2015. In terms of export, the latest data available from November 2015 points at a 6.4% growth in Europe. Italian products perform very well in more established and solid markets.
In the US we are booming; we are up over 23% in the first 10 months of last year, which is an amazing performance; twice the average in the euro area. The exchange rate helps, but this success is also due to our work in promotion. I believe that with all these elements – namely the structural reform, the increasing consumption trend, and the good export performance – we will create healthy growth.
Many experts say that 2016 might be another turbulent year in terms of global outlook. Would you say that the Italian recovery is a consequence of exogenous factors – such as quantitative easing or the collapse of the oil price – or is it a direct consequence of the reform agenda that has been implemented?
It’s obviously a mix – I’d say 50:50. Looking at 2016, the endogenous factor, namely the reform agenda, will have a stronger impact than exogenous factors. We also need to consider, as you said, that exogenous factors are not always positive, because there is an increasing volatility in the global market nowadays. Therefore, those risks may negatively affect Italy and the rest of the euro area.
For instance, consider the oil price. Oil having a low cost is good news for us, as Italy is an oil-importer and therefore our oil bill will be decreasing. However, it will negatively impact oil-exporter countries and emerging markets that will have less accessibility to resources to purchase Italian products. So, if we consider all exogenous factors constant, Italy will be able to rely on important changes brought in by the structural reforms.
Italy has already consolidated its role as a key supplier of a number of traditional products, in agribusiness, fashion, and industrial design. Do you feel that the challenge now is to boost export diversification and increase the share of high-tech and innovative sectors?
This is clearly a crucial objective. First of all, Italy as you might have noticed also looking at our video, Italy: The Extraordinary Commonplace, is well aware of the country’s perception abroad based on the excellences we have been exporting globally. Italy is perceived as a large exporter of style, fashion, food.
However, if you look at our exports, the bulk is actually really high-tech products. We are doing really well in equipment capital goods, which is the technology that goes into the manufacturing processes and production chain.
For example, machines for molding plastic or ceramic; devices for cutting glass; or technology for packaging food; this is what we export mostly. This segment is always very strong and forecasts point at stable growth.
We are also growing very well in the pharmaceutical and biotech sectors. Again, Italy is not associated with that normally, but our pharmaceutical and biotech industries have been registering the highest export growth rate over the past four years. Aerospace and defense are recording a great performance as well.
We have been relatively less brilliant in fashion and jewelry in the past year because of some ups and downs, especially related to emerging markets in Asia. The US market, however, continues to be key also in these sectors.
We also had a good performance in furniture and all the house-related appliances and decor, such as tiles, lighting systems, kitchenware and bathrooms. But definitely top performance from pharmaceuticals, aerospace, defense and food.
Exports had undeniably a positive impact on growth. However, the country hasn’t been doing that well in terms of attracting FDI compared to its European peers. What do you think are the main challenges in terms of creating a more conducive environment that would push international investors to come to Italy?
When we launched the ‘extraordinary’ plan for Made in Italy, we had in mind exactly this element. The plan had clear macro-objectives: develop 22,000 new exporters; €50 billion additional exports by the end of 2016; and attract €20 billion worth of FDI. So we have been really focusing also on the investment part. We are seeing great results in this aspect. 2015 has definitely been a much better year than 2014.
Our estimated records saw a substantial increase in investment, approximately 50% at the close of 2015. My personal estimate is that we will close the year with around €30 billion worth.
The good news is that we are attracting greenfield investments, which is the most precious form as it immediately creates jobs and generates wealth in the country. Just to mention a couple of the most prominent examples, we have General Electric in aerospace, Phillip Morris, and the Volkswagen Group for the Lamborghini SUV.
It’s interesting to underline an ongoing shifting trend. In the last 10 years, the name of the game was ‘emerging markets.’ Everybody was rushing to invest in China and Brazil, with the perception that the profitability would more than outweigh the higher risk in these countries. Today, with the increased volatility of the global economy, the risk factor has become even more important in the decision-making process about where to invest. Therefore, all of Europe, and especially Italy, that has a sophisticated manufacturing base and can represent a springboard for growing abroad and exporting is hot again.
Again, on the one hand exogenous factors have been working on making Italy a more welcoming place with businessmen and entrepreneurs looking to lower the risk of their portfolios. On the other, we have been doing more aggressive marketing; we have set up an office within the Ministry of Economic Development that provides investors support by helping them navigate the system; better coordinate between central and local authorities; and overcome the hurdles of the public administration. We are glad to see a great interest in investing in Italy.
What does the US market represent for ITA?
Americans say “put your money where your mouth is.” We are doing exactly that. We are doing massive investment in the US. We do not only declare that the US is our big priority, but this year ITA is also investing in the US more than the total 2015 global investment, thanks to additional resources.
Two years ago, we decided we needed a quantitative analysis of the market potential and we have checked that the US has the biggest potential for capital growth, but in terms of absolute and incremental value.
The ITA launched a very important campaign on food, which is a big market in the US. The campaign aimed at raising awareness about the ‘Made in Italy.’ Only one out of five products that are perceived as Italian are really made in Italy and four out of five are non-Italian. We call them “Italian sounding” because their packaging and their name is presented in such a way that consumers believe they are buying an Italian product when it actually has nothing to do with Italy.
We are reinforcing our presence with the opening of a new office in Houston as we speak. Texas is a big market and though we are traditionally competitive on the two coasts we have not been that strong in the middle and the south of the US. We reopened the office in Miami one and a half years ago and we are launching a number of initiatives with the large retailers such as Price Chopper and Mariano’s; or the non-food ones like Nordstrom, Macy’s, Bloomingdale’s, and Saks Fifth Avenue. The programs are focusing on two things: expanding the sales of existing products with the promotion of ‘Made in Italy’; and bringing to the retailer new products that have not been introduced to the American market yet.
In terms of American investments in Italy, in contrast, we are far too under represented compared to our European peers. We believe Italy has a good opportunity to become a bigger base for American manufacturing in Europe. We want to attract investment from high-tech companies in biotech and pharmaceutical, but also highly innovative Silicon Valley-like companies.
Do you think the Transatlantic Trade and Investment Partnership (TTIP) is going to be a positive agreement or an unbalanced trade-off for US companies to acquire a dominant market position in Europe?
I am a big supporter of the TTIP. I think TTIP has been a victim of a weak communications strategy from the European side. However, if you consider the issues on the table for the trading negotiation, I truly believe American officials should be reassured because Europe has very high standards of quality, product safety and checks, and labor standards. Accepting each other’s standards would make life much easier for hundreds of thousands of companies that would be facilitated in doing business overseas.
The TTIP would generate great benefits on both sides of the Atlantic, though all analyses say that the agreement would be even more beneficial to Europe than the US. In this context, the research and studies we have committed to and those done by independent sources come to the conclusion that Italy would be one of the top beneficiaries, if not the number one beneficiary, of the TTIP. This is because of the sectors that would be enhanced in terms of trade facilitation such as food and luxury items – jewelry, fashion, and textiles.
Having said that, there is still a lot of misperception and misinformation around the TTIP. Many people who oppose the TTIP have no clue about what the agreement entails or the potential benefits. The TTIP is not about making life easier for the big corporations; MNCs (multinational corporations) are well organized to navigate and overcome the complexity of setting up businesses globally. For instance, if there is an issue about labeling or naming a product, or more simply dealing with all the bureaucracy necessary to establish a business or a branch overseas, the big guys are well equipped to handle that. It’s the SMEs that have the problem. If you have to re-label a product just to send it to the US, they might not have capability to do that, so this will give them an enormous boost.
So, the perception that this is sort of a big present to large corporations is totally wrong. The TTIP is a big boost in the promotion of trade and doing business across the Atlantic. We need to be able to communicate that more effectively.
What attributes or products would you like to import into Italy, and what would you like to export to the US in order to make the American business community more aware of the Italian potential?
What I would like to import is the American risk-taking attitude of the American entrepreneur; the fact that people are not afraid to fail. We still suffer from a stigma about failing.
When I speak to venture capitalists, they say “we like to invest with people who have failed before because they have learned the hard way and they are ready to do better the next time.” So, I would like Italians to have more of this attitude, to try hard and if you fail just get back on your feet and try again. I love that about the US.
What I would like to export to the US, and actually we are doing that on a regular basis, is our Italian capability to create beautiful, cool, durable, well done, elegant, and unique products. If you look at Italy from the outside, you don’t see any competitive advantage. It is a small country with a small population and zero natural resources. Nonetheless, this year we have one of the top five trade surpluses in the world. The competitive advantage we have is our creativity and our capacity to design excellent products. This is Italy’s big competitive advantage and I’d like America and the whole world to be more aware of it.